2023-11-20EatonVanceFixed-IncomeETF_Pro485B
Calvert
Ultra-Short Investment Grade ETF
Prospectus | January
28, 2024
| |
Ticker
Symbol |
Exchange |
CVSB |
NYSE
Arca |
The
Securities and Exchange Commission (“SEC”) has not approved or disapproved these
securities or passed upon the adequacy
of this Prospectus. Any representation to the contrary is a criminal
offense.
An
investment in the
Fund is not a bank deposit and is not insured by the Federal Deposit Insurance
Corporation or any other
government agency. An investment in the
Fund involves investment risks, and you may lose money in the
Fund.
Calvert
Ultra-Short Investment Grade ETF
Investment
Objective
Calvert
Ultra-Short Investment Grade ETF (the “Fund”) seeks to maximize income, to the
extent consistent with preservation of capital,
through investment in short-term bonds and income-producing
securities.
Fees
and Expenses
The
table below describes the fees and expenses that you may pay if you buy, hold
and sell shares of the Fund. You
may pay fees other
than the fees and expenses of the Fund, such as brokerage commissions and other
fees charged by financial intermediaries,
which are not reflected in the tables and examples
below.
Annual
Fund Operating Expenses1 (expenses
that you pay each year as a percentage of the value of your
investment)
|
| |
Management
Fee1
|
% |
|
Other
Expenses |
0.00% |
|
Total
Annual Fund Operating Expenses |
0.24% |
|
1 |
The
Fund’s management agreement provides that the Fund’s “Adviser,” Morgan
Stanley Investment Management Inc., will pay substantially all expenses
of
the Fund (including expenses of Morgan Stanley ETF Trust (the “Trust”)
relating to the Fund), except for the distribution fees, if any, brokerage
expenses,
acquired fund fees and expenses, taxes, interest, litigation expenses, and
other extraordinary expenses, including the costs of proxies, not
incurred
in the ordinary course of the Fund’s
business. |
Example
The
example below is intended to help you compare the cost of investing in the Fund
with the cost of investing in other funds. The example
does not take into account brokerage commissions that you pay when purchasing or
selling shares of the Fund.
The
example assumes that you invest $10,000 in the Fund for the time periods
indicated and then sell all of your shares at the end of those
periods. The example also assumes your investment has a 5% return each year and
the Fund’s operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
|
|
|
|
| |
|
1
Year |
3
Years |
5
Years |
10
Years |
|
|
$25 |
$77 |
$135 |
$306 |
|
Portfolio
Turnover
The
Fund pays transaction costs, such as commissions, when it buys and sells
securities (or “turns over” its portfolio). A higher portfolio
turnover rate may indicate higher transaction costs and may result in higher
taxes when Fund shares are held in a taxable account.
These costs, which are not reflected in Total Annual Fund Operating Expenses or
in the example, affect the Fund’s performance.
During
the period from January
30, 2023 (commencement of operations) through September
30, 2023, the Fund’s portfolio
turnover rate was 54% of the average value of its
portfolio.
Principal
Investment Strategies
The
Fund seeks to achieve its investment objective by investing, under normal
circumstances, at least 80%
of its net assets (including any
borrowings for investment purposes) in a portfolio of investment grade,
short-term fixed, variable and floating-rate securities. This
policy may be changed without shareholder approval; however, shareholders would
be notified upon 60 days’ notice in writing of
any changes. The Fund is not a money market fund and does not seek to maintain a
stable net asset value.
The
Fund is actively managed, not designed to track a benchmark, and therefore not
constrained by the composition of a benchmark.
Under
normal circumstances, the Fund’s average portfolio duration will be one year or
less. In certain market conditions, such as in periods
of significant volatility in interest rates and spreads, the Fund’s duration may
be longer than one year. During periods when the
Fund’s average duration is longer than one year, the Fund may not achieve its
investment objective.
The
Fund will only invest in investment grade securities, as assessed at the time of
purchase. The Fund invests principally in U.S. dollar-denominated
debt securities. A debt security is considered investment grade when assigned a
credit quality rating of BBB- or higher
by S&P Global Ratings (“S&P”) or an equivalent rating by another
nationally recognized statistical rating organization (‘‘NRSRO”),
including Moody’s Investors Service or Fitch Ratings, or Kroll Bond Rating
Agency, LLC for securitized debt instruments
only (such as asset-backed securities (“ABS”) and mortgage-backed securities
(“MBS”)) or if unrated, considered to be of comparable
credit quality by the Adviser. For purposes of rating restrictions, if
securities are rated differently by two or more rating agencies,
the highest rating is used.
The
Fund invests principally in bonds issued by U.S. corporations, the U.S.
Government or its agencies, and U.S. government-sponsored
enterprises (“GSEs”) such as the Federal National Mortgage Association (“FNMA”)
and the Federal Home Loan Mortgage
Calvert
Ultra-Short Investment Grade ETF (Con’t)
Corporation
(“FHLMC”). The Fund also may invest in trust preferred securities, money market
instruments and taxable municipal obligations.
The
Fund may invest up to 50% of its net assets in ABS and MBS that represent
interests in pools of mortgage loans (MBS) or other assets
(ABS) assembled for sale to investors by various U.S. governmental agencies,
government-related organizations and private issuers.
MBS may include collateralized mortgage obligations (“CMOs”) and commercial
mortgage-backed securities (“CMBS”). The Fund
may invest up to 25% of its net assets in non-agency ABS and
MBS.
The
Fund may also invest up to 25% of its net assets in foreign debt securities.
Foreign debt securities include American Depositary Receipts
(“ADRs”). The Fund may engage in forward foreign currency exchange contracts to
seek to hedge against the decline in the value
of currencies in which its portfolio holdings are denominated against the U.S.
dollar. The Fund may also lend its
securities.
The
Fund will concentrate its investments in the banking industry. Therefore, under
normal conditions, the Fund will invest more than
25% of its total assets in securities issued by issuers in the banking industry.
The Fund may, however, invest less than 25% of its total
assets in this industry as a temporary defensive
measure.
The
portfolio managers are responsible for fundamental analysis and security
selection, incorporating environmental, social and governance
(“ESG”) information provided by ESG analysts at Calvert Research and Management
(“Calvert”). The Fund seeks to invest
in issuers that manage ESG risk exposures adequately and that are not exposed to
excessive ESG risk through their principal business
activities. Issuers are analyzed by Calvert’s ESG analysts utilizing the Calvert
Principles for Responsible Investment, a framework
for considering ESG factors (a copy of which is included as an appendix to the
Fund’s Prospectus). Management of the Fund
involves consideration of numerous factors other than ESG, such as quality of
business franchises, financial strength, management
quality and security structural and collateral considerations. The portfolio
managers may also use sector rotation and relative
value strategies in their management of the Fund. The portfolio managers may
sell a security when the Adviser’s valuation target
is reached, the fundamentals of the investment change or to pursue more
attractive investment options. A security will also be sold
(in accordance with the Adviser’s guidelines and at a time and in a manner that
is determined to be in the best interests of shareholders)
if the Adviser determines that the issuer does not operate in a manner
consistent with the Fund’s responsible investment
criteria. The portfolio managers intend to focus on risk management and also
seek to preserve capital to the extent consistent
with the Fund’s investment objective. The Fund intends to seek to manage
investment risk by maintaining broad issuer and
industry diversification among its holdings, and by utilizing fundamental
analysis of risk/return characteristics in securities selection.
The Fund seeks to manage duration and any hedging of interest rate risk through
the purchase and sale of U.S. Treasury securities
and related futures contracts (which are a type of derivative
instrument).
Although
the Fund’s ESG factors and responsible investing criteria are typically
considered with respect to each company or issuer in which
the Fund invests, other factors may be considered by the portfolio management
team. In assessing investments, Calvert generally
focuses on the ESG factors and responsible investing criteria relevant to the
issuer’s operations, and an issuer may be acceptable
for investment based primarily on such assessment. As a result, securities may
be deemed suitable for investment even if the
issuer does not operate in accordance with all elements of the Fund’s ESG
factors and responsible investing criteria. For instance, the
Fund may also invest in issuers that Calvert believes are likely to operate in
accordance with the Calvert Principles pending Calvert’s
engagement activity with such issuer. Additionally, the Fund may invest in cash,
money market instruments and ETFs. Such
investments will generally not be subject to the Fund’s responsible investment
analysis and will not be required to be consistent with
the Fund’s ESG factors and responsible investment criteria otherwise applicable
to investments made by the Fund. In addition, ETFs
in which the Fund may invest may hold securities of issuers that do not operate
in accordance with the Fund’s ESG factors and responsible
investment criteria.
Principal
Risks
There
is no assurance that the Fund will achieve its investment objective, and you can
lose money investing in this Fund.
The principal
risks of investing in the Fund include:
• |
Fixed-Income
Securities.
Fixed-income securities are subject to the risk of the issuer’s inability
to meet principal and interest payments
on its obligations (i.e., credit risk) and are subject to price volatility
resulting from, among other things, interest rate sensitivity
(i.e., interest rate risk), market perception of the creditworthiness of
the issuer and general market liquidity (i.e., market risk).
The Fund may face a heightened level of interest rate risk in times of
monetary policy change and/or uncertainty, such as when
the Federal Reserve Board adjusts a quantitative easing program and/or
changes rates. A changing interest rate environment increases
certain risks, including the potential for periods of volatility,
increased redemptions, shortened durations (i.e., prepayment
risk) and extended durations (i.e., extension risk). The
Fund is not limited as to the maturities (when a debt security
provides
its final payment) or durations (measure of interest rate sensitivity) of
the securities in which it may invest. Securities
with
longer durations are likely to be more sensitive to changes in interest
rates, generally making them more volatile than securities
with shorter durations. Lower rated fixed-income securities have greater
volatility because there is less certainty that principal
and interest payments will be made as scheduled. The Fund may be subject
to certain liquidity risks that may result from
|
Calvert
Ultra-Short Investment Grade ETF (Con’t)
|
the
lack of an active market and the reduced number and capacity of
traditional market participants to make a market in fixed-income
securities. |
• |
Credit
and Interest Rate Risk.
Credit risk refers to the possibility that the issuer or guarantor of a
security will be unable or unwilling
or perceived to be unable or unwilling to make interest payments and/or
repay the principal on its debt. In such instances,
the value of the Fund could decline and the Fund could lose money.
Interest rate risk refers to the decline in the value of
a fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level
of interest rates goes down, the prices of most fixed-income
securities go up. The Fund may invest in variable and floating rate loans
and other variable and floating rate securities.
Although these instruments are generally less sensitive to interest rate
changes than fixed rate instruments, the value of variable
and floating rate loans and other securities may decline if their interest
rates do not rise as quickly, or as much, as general interest
rates. For example, during periods when interest rates are low, the Fund’s
yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Credit ratings may not be an accurate assessment
of liquidity or credit risk. Although credit ratings may not accurately
reflect the true credit risk of an instrument, a change
in the credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more
difficult for the Fund to sell at an advantageous price or
time. |
• |
Asset-Backed
Securities.
Asset-backed securities are subject to credit (such as borrower’s default
on its mortgage obligation and the default
or failure of a guarantee underlying the asset-backed security), interest
rate and certain additional risks, including the risk that
various federal and state consumer laws and other legal and economic
factors may result in the collateral backing the securities being
insufficient to support payment on the securities. To the extent the Fund
invests in asset-backed securities issued by non-governmental
issuers, such as commercial banks, savings and loan institutions, and
other secondary market issuers, the Fund will be
exposed to additional risks because, among other things, there are no
direct or indirect government or agency guarantees of payments
in the pools underlying the securities. Some asset-backed securities also
entail prepayment risk and extension risk, which may
vary depending on the type of asset. Due to these and other risks,
asset-backed securities may become more volatile in certain interest
rate environments. |
• |
Mortgage-Backed
Securities.
Mortgage-backed securities entail prepayment risk, which generally
increases during a period of falling
interest rates. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of mortgage-backed
securities will increase and market price will decrease. Rates of
prepayment, faster or slower than expected by the Adviser,
could reduce the Fund’s yield, increase the volatility of the Fund and/or
cause a decline in net asset value (“NAV”). Mortgage-backed
securities are also subject to extension risk, which is the risk that
rising interest rates could cause mortgages or other
obligations underlying the securities to be prepaid more slowly than
expected, thereby lengthening the duration of such securities,
increasing their sensitivity to interest rate changes and causing their
prices to decline. Certain mortgage-backed securities
may be more volatile and less liquid than other traditional types of debt
securities. In addition, mortgage-backed securities
are subject to credit risk. The
Fund may invest in non-agency mortgage-backed securities offered by
non-governmental issuers,
such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other
secondary market issuers. Non-agency mortgage-backed securities are not
subject to the same underwriting requirements for the
underlying mortgages that are applicable to those mortgage-backed
securities that have a government or government-sponsored
entity guarantee. As a result, the mortgage loans underlying non-agency
mortgage-backed securities may, and frequently
do, have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored
mortgage-backed securities and have wider variances in a number of terms
including interest rate, term, size, purpose and
borrower characteristics. To the extent the Fund invests in non-agency
mortgage-backed securities offered by non-governmental
issuers, the Fund will be exposed to additional risks because, among other
things, there are no direct or indirect government
or agency guarantees of payments in pools underlying the
securities.
An unexpectedly high rate of defaults on the mortgages
held by a mortgage pool may adversely affect the value of a
mortgage-backed security and could result in losses to the Fund.
The risk of such defaults is generally higher in the case of mortgage
pools that include subprime mortgages. Furthermore, mortgage-backed
securities may be subject to risks associated with the assets underlying
those securities, such as a decline in value. Investments
in mortgage-backed securities may give rise to a form of leverage
(indebtedness) and may cause the Fund’s portfolio turnover
rate to appear higher. Leverage may cause the Fund to be more volatile
than if the Fund had not been leveraged. The risks
associated with mortgage-backed securities typically become elevated
during periods of distressed economic, market, health and
labor conditions. In particular, increased levels of unemployment, delays
and delinquencies in payments of mortgage and rent obligations,
and uncertainty regarding the effects and extent of government
intervention with respect to mortgage payments and other
economic matters may adversely affect the Fund’s investments in
mortgage-backed securities. In addition, commercial mortgage-backed
securities are also subject to risks associated with reduced demand for
commercial and office space, tightening lending
standards and increased interest and lending rates, and other developments
adverse to the commercial real estate
market. |
• |
Commercial
Mortgage-Backed Securities.
CMBS are subject to credit risk and prepayment risk. Although prepayment
risk is present,
it is of a lesser degree in the CMBS market than in the residential
mortgage market; commercial real estate property loans often
contain provisions which substantially reduce the likelihood that such
securities will be prepaid (e.g., significant prepayment penalties
on loans and, in some cases, prohibition on principal payments for several
years following
origination). |
Calvert
Ultra-Short Investment Grade ETF (Con’t)
• |
Collateralized
Mortgage Obligations.
CMOs are comprised of various tranches, the expected cash flows of which
have varying degrees
of predictability as compared with the underlying mortgage loans or
mortgage pass-through entities. The less predictable the
cash flow, the higher the yield and the greater the risk. In addition, if
the collateral securing CMOs or any third-party guarantees
is insufficient to make payments, the Fund could sustain a loss. Like
other mortgage backed-securities, some CMOs are subject
to credit risk. The Fund invests in both agency and non-agency CMOs. Many
agency CMOs do not have credit risk as they
are government
guaranteed. |
• |
U.S.
Government Securities.
Different types of U.S. government securities are subject to different
levels of credit risk, including the risk
of default, depending on the nature of the particular government support
for that security. For example, a U.S. government-sponsored
entity, such as FNMA or FHLMC, although chartered or sponsored by an Act
of Congress, may issue securities that are neither
insured nor guaranteed by the U.S. Treasury and, therefore, are not backed
by the full faith and credit of the United States.
With respect to U.S. government securities that are not backed by the full
faith and credit of the United States, there is the risk
that the U.S. Government will not provide financial support to such U.S.
government agencies, instrumentalities or sponsored
enterprises if it is not obligated to do so by
law. |
• |
Money
Market Instrument Risk.
Money market instruments may be adversely affected by market and economic
events, such as: a change
in prevailing short-term interest rates; adverse developments in the
banking industry, which issues or guarantees many money
market instruments; adverse economic, political or other developments
affecting issuers of money market instruments; changes
in the credit quality of issuers; and default by a counterparty or an
issuer. |
• |
Preferred
Securities.
Preferred stock is issued with a fixed par value and pays dividends based
on a percentage of that par value at a fixed
rate. As with fixed-income securities, which also make fixed payments, the
market value of preferred stock is sensitive to changes
in interest rates. Preferred stock generally decreases in value if
interest rates rise and increases in value if interest rates
fall. |
• |
Municipals.
Because the Fund may
invest in municipal securities (also referred to as municipal
obligations), the Fund may be susceptible
to political, legislative, economic, regulatory, tax or other factors
affecting issuers of these municipal securities, such as state
and local governments and their agencies. To the extent that the Fund
invests in municipal securities of issuers in the same state
or economic sector, it could be more sensitive to economic, business or
political developments that affect such state or economic
sector. Municipal securities and their issuers may be more susceptible to
downgrade, loss of revenue, default and bankruptcy
during periods of economic stress. Municipal securities also involve the
risk that an issuer may call the securities for redemption,
which could force the Fund to reinvest the proceeds at a lower rate of
interest. While interest earned on municipal securities
is generally not subject to federal income tax, any interest earned on
taxable municipal securities is fully taxable at the federal
level and may be subject to state and/or local income
tax. |
• |
Trust
Preferred Securities.
The risks associated with trust preferred securities generally include,
among others, the financial condition
of the issuer, as the trust typically has no business operations other
than holding the subordinated debt and issuing the trust
preferred securities. In addition, holders of trust preferred securities
have limited voting rights to control the activities of the trust
and no voting rights with respect to the issuer. The market value of trust
preferred securities may be more volatile than those of
conventional debt securities. There can be no assurance as to the
liquidity of trust preferred securities and the ability of holders,
such
as a Fund, to sell their
holdings. |
• |
Foreign
Securities.
Investments in foreign markets entail special risks such as currency,
political (including geopolitical), economic and
market risks. There also may be greater market volatility, less reliable
financial information, less stringent investor protections and
disclosure standards, higher transaction and custody costs, decreased
market liquidity and less government and exchange regulation
associated with investments in foreign markets. In addition, investments
in certain foreign markets that have historically
been considered stable may become more volatile and subject to increased
risk due to developments and changing conditions
in such markets. Moreover, the growing interconnectivity of global
economies and financial markets has increased the probability
that adverse developments and conditions in one country or region will
affect the stability of economies and financial markets
in other countries or regions. Certain foreign markets may rely heavily on
particular industries or foreign capital and are more
vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, organizations,
companies, entities and/or individuals, changes in international trading
patterns, trade barriers and other protectionist
or retaliatory measures. Investments in foreign markets may also be
adversely affected by governmental actions such as
the imposition of capital controls, nationalization of companies or
industries, expropriation of assets or the imposition of punitive
taxes. The governments of certain countries may prohibit or impose
substantial restrictions on foreign investing in their capital
markets or in certain sectors or industries. In addition, a foreign
government may limit or cause delay in the convertibility or
repatriation of its currency which would adversely affect the U.S. dollar
value and/or liquidity of investments denominated in that
currency. Certain foreign investments may become less liquid in response
to market developments or adverse investor perceptions,
or become illiquid after purchase by the Fund, particularly during periods
of market turmoil. When the Fund holds illiquid
investments, its portfolio may be harder to value. In addition, the Fund’s
investments in foreign issuers may be denominated
in foreign currencies and therefore, to the extent unhedged, the value of
those investments will fluctuate with U.S. dollar
exchange rates. |
Calvert
Ultra-Short Investment Grade ETF (Con’t)
• |
Foreign
Currency.
The Fund’s investments in foreign securities may be denominated in foreign
currencies. The value of foreign currencies
may fluctuate relative to the value of the U.S. dollar. Since the Fund may
invest in such non-U.S. dollar-denominated securities,
and therefore may convert the value of such securities into U.S. dollars,
changes in currency exchange rates can increase or
decrease the U.S. dollar value of the Fund’s assets. Currency exchange
rates may fluctuate significantly over short periods of time
for a number of reasons, including changes in interest rates and the
overall economic health of the issuer. Devaluation of a currency
by a country’s government or banking authority also will have a
significant impact on the value of any investments denominated
in that currency. The Adviser may use derivatives to seek to reduce this
risk. The Adviser may in its discretion choose
not to hedge against currency risk. In addition, certain market conditions
may make it impossible or uneconomical to hedge
against currency
risk. |
• |
Restricted
Securities.
The Fund’s investments may include securities which are subject to resale
restrictions. These securities could have
the effect of increasing the level of Fund illiquidity to the extent the
Fund may be unable to sell or transfer these securities due
to restrictions on transfers or on the ability to find buyers interested
in purchasing the securities. Additionally, the market for certain
investments deemed liquid at the time of purchase may become illiquid
under adverse market or economic conditions. The
illiquidity of the market, as well as the lack of publicly available
information regarding these securities, may also adversely affect
the ability to arrive at a fair value for certain securities at certain
times and could make it difficult for the Fund to sell certain
securities.
If the Fund is forced to sell an illiquid security to fund redemptions or
for other cash needs, it may be forced to sell the security
at a loss or for less than its fair value and may be unable to sell the
security at all. |
• |
Liquidity.
The Fund may make investments that are illiquid or restricted or that may
become less liquid in response to overall economic
conditions or adverse investor perceptions, and which may entail greater
risk than investments in other types of securities.
These investments may be more difficult to value or sell, particularly in
times of market turmoil, and there may be little trading
in the secondary market available for particular securities. If the Fund
is forced to sell an illiquid or restricted security to fund
redemptions or for other cash needs, it may be forced to sell the security
at a loss or for less than its fair value and may be unable
to sell the security at
all. |
• |
Derivatives.
Derivatives and other similar instruments that create synthetic exposure
often are subject to risks similar to those of the
underlying asset or instrument, including market risk, and may be subject
to additional risks, including imperfect correlation between
the value of the derivative and the underlying asset, risks of default by
the counterparty to certain transactions, magnification
of losses incurred due to changes in the market value of the securities,
instruments, indices or interest rates to which the
derivative instrument relates, risks that the transactions may not be
liquid, risks arising from margin and payment requirements,
risks arising from mispricing or valuation complexity and operational and
legal risks. Certain derivative transactions may
give rise to a form of leverage. Leverage magnifies the potential for gain
and the risk of
loss. |
• |
Market
and Geopolitical Risk.
The value of your investment in the Fund is based on the values of the
Fund’s investments, which change
due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries,
companies or governments. These events may be sudden and unexpected, and
could adversely affect the liquidity of the Fund’s
investments, which may in turn impact valuation, the Fund’s ability to
sell securities and/or its ability to meet redemptions.
The risks associated with these developments may be magnified if certain
social, political, economic and other conditions
and events (such as war, natural disasters, epidemics and pandemics,
terrorism, conflicts, social unrest, recessions, inflation,
interest rate changes and supply chain disruptions) adversely interrupt
the global economy and financial markets. It is difficult
to predict when events affecting the U.S. or global financial
markets may occur, the effects that such events may have and the
duration of those effects (which may last for extended periods). These
events may negatively impact broad segments of businesses
and populations and have a significant and rapid negative impact on the
performance of the Fund’s investments, adversely
affect and increase the volatility of the Fund’s share price and
exacerbate pre-existing risks to the
Fund. |
|
Authorized
Participant Concentration Risk.
Only an authorized participant may engage in creation or redemption
transactions directly
with the Fund. The Fund has a limited number of intermediaries that act as
authorized participants and none of these authorized
participants is or will be obligated to engage in creation or redemption
transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop or be maintained. To the
extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation and/or redemption
orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant creates or redeems,
shares may trade at a discount to net asset value (“NAV”) and
possibly face trading halts and/or
delisting. |
|
Cash
Transactions Risk.
Unlike certain ETFs, the Fund may effect creations and redemptions in cash
or partially in cash. Therefore,
it may be required to sell portfolio securities and subsequently recognize
gains on such sales that the Fund might not have
recognized if it were to distribute portfolio securities in-kind. As such,
investments in shares may be less tax-efficient than an investment
in an ETF that distributes portfolio securities entirely
in-kind. |
|
Trading
Risk.
The market prices of shares are expected to fluctuate, in some cases
materially, in response to changes in the Fund’s NAV,
the intra-day value of the Fund’s holdings, and supply and demand for
shares. The Adviser cannot predict whether shares
|
Calvert
Ultra-Short Investment Grade ETF (Con’t)
|
will
trade above, below or at their NAV. Disruptions to creations and
redemptions, the existence of significant market volatility or
potential
lack of an active trading market for the shares (including through a
trading halt), as well as other factors, may result in the
shares trading significantly above (at a premium) or below (at a discount)
to NAV or to the intraday value of the Fund’s holdings.
You may pay significantly more or receive significantly less than the
Fund’s NAV per share during periods when there is a
significant premium or discount. Buying or selling shares in the secondary
market may require paying brokerage commissions or other
charges imposed by brokers as determined by that broker. Brokerage
commissions are often a fixed amount and may be a significant
proportional cost when seeking to buy or sell relatively small amounts of
shares. In addition, the market price of shares, like
the price of any exchange-traded security, includes a “bid-ask spread”
charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s shares varies over time
based on the Fund’s trading volume and market liquidity
and may increase if the Fund’s trading volume, the spread of the Fund’s
underlying securities, or market liquidity decrease. |
• |
Responsible
Investing.
Investing primarily in responsible investments carries the risk that,
under certain market conditions, the Fund
may underperform funds that do not utilize a responsible investment
strategy. The application of responsible investment criteria
may affect the Fund’s exposure to certain sectors or types of investments,
and may impact the Fund’s relative investment performance
depending on whether such sectors or investments are in or out of favor in
the market. An investment’s ESG performance,
or Calvert’s and/or the Adviser’s assessment of such performance may
change over time, which could cause the Fund to
temporarily hold securities that do not comply with the Fund’s responsible
investment criteria. In evaluating an investment, Calvert
and the Adviser are dependent upon information and data that may be
incomplete, inaccurate or unavailable, which could adversely
affect the analysis of the ESG factors relevant to a particular
investment. Successful application of the Fund’s responsible investment
strategy will depend on Calvert’s and/or the Adviser’s skill in properly
identifying and analyzing material ESG
issues. |
• |
Active
Management Risk.
In pursuing the Fund’s investment objective, the Adviser has considerable
leeway in deciding which investments
to buy, hold or sell on a day-to-day basis, and which trading strategies
to use. For example, the Adviser, in its discretion,
may determine to use some permitted trading strategies while not using
others. The success or failure of such decisions will
affect the Fund’s
performance. |
• |
Banking
Industry.
Investment opportunities in investment grade securities may be
concentrated in the banking industry. Under normal
conditions, the Fund will invest more than 25% of its total assets in
securities issued by issuers in the banking industry. As a
result, the Fund may have a high concentration of investments in the
banking industry. The banking industry can be affected by global
and local economic conditions, such as the levels and liquidity of the
global and local financial and asset markets, the absolute
and relative level and volatility of interest rates and equity prices,
investor sentiment, inflation, the availability and cost of credit
and other factors and such effects can at times be significant. The
enactment of new legislation or regulations, as well as changes
in interpretation and enforcement of current laws, may affect the manner
of operations and profitability of the banking industry.
Because the Fund’s investments will be concentrated in the banking
industry, factors that have an adverse impact on this industry
may have a disproportionate impact on the Fund’s
performance. |
Shares
of the Fund are not bank deposits and are not guaranteed or insured by the
Federal Deposit Insurance Corporation or any other
government agency.
Performance
Information
As
of the date hereof, the Fund has not yet completed a full calendar year of
investment operations. Upon the completion of a full calendar
year of investment operations by the Fund, this section will include charts that
provide some indication of the risks of an investment
in the Fund, by showing the difference in annual total returns, highest and
lowest quarterly returns and average annual total
returns (before and after taxes) compared to the benchmark index selected for
the Fund. Performance information for the Fund is
available online at www.calvert.com
or by calling toll-free 800-836-2414.
Fund
Management
Adviser.
Morgan Stanley Investment Management Inc.
Portfolio
Managers. Information
about the members jointly and primarily responsible for the day-to-day
management of the Fund is shown
below:
|
| |
Name |
Title
with Adviser |
Date
Began Managing
Fund |
Brian
S. Ellis, CFA |
Managing
Director |
January
2023 |
Eric
Jesionowski |
Executive
Director |
January
2023 |
Brandon
Matsui, CFA |
Executive
Director |
August
2023 |
Kinzer
Jennings, CFA |
Vice
President |
August
2023 |
Alec
Schaefer |
Vice
President |
August
2023 |
Calvert
Ultra-Short Investment Grade ETF (Con’t)
Purchase
and Sale of Fund Shares
Individual
shares of the Fund may only be purchased and sold in secondary market
transactions through a broker or dealer at market price.
Because shares trade at market prices, rather than NAV, shares of the Fund may
trade at a price greater than NAV (i.e., a premium)
or less than NAV (i.e., a discount).
You
may incur costs attributable to the difference between the highest price a buyer
is willing to pay for shares (bid) and the lowest price
a seller is willing to accept for shares (ask) (the “bid-ask spread”) when
buying or selling shares in the secondary market.
Recent
information, including information about the Fund’s NAV, market price, premiums
and discounts, and bid-ask spreads (when
available),
is available on the Fund’s website at www.calvert.com.
Tax
Information
The
Fund intends to make distributions that may be taxed as ordinary income or
capital gains, unless you are investing through a tax-deferred
arrangement, such as a 401(k) plan or an individual retirement
account.
Payments
to Broker-Dealers and Other Financial Intermediaries
If
you purchase shares of the Fund through a broker-dealer or financial
intermediary (such as a bank), the Adviser and/or Foreside Fund
Services, LLC (the “Distributor”) may pay the financial intermediary for the
sale of Fund shares and related services. These payments,
which may be significant in amount, may create a conflict of interest by
influencing the financial intermediary and your salesperson
to recommend the Fund over another investment. Ask your salesperson or visit
your financial intermediary’s website for more
information.
Calvert | Details
of the Fund
Calvert
Ultra-Short Investment Grade ETF
Investment
Objective
The
Fund’s investment objective is to seek to maximize income, to the extent
consistent with preservation of capital, through investment
in short-term bonds and income-producing securities.
The
Fund’s investment objective may be changed by the Trust’s Board of Trustees
without shareholder approval, but no change is anticipated.
If the Fund’s investment objective changes, the Fund will notify shareholders
and shareholders should consider whether the
Fund remains an appropriate investment in light of the change.
Approach
The
Fund seeks to achieve its investment objective by investing, under normal
circumstances, at least 80% of its net assets (including any
borrowings for investment purposes) in a portfolio of investment grade,
short-term fixed, variable and floating-rate securities. This
policy may be changed without shareholder approval; however, shareholders would
be notified upon 60 days’ notice in writing of
any changes. Derivative instruments used by the Fund will be counted toward the
Fund’s 80% policy discussed above to the extent they
have economic characteristics similar to the securities included within that
policy. The Fund is not a money market fund and does
not seek to maintain a stable net asset value.
The
Fund is actively managed, not designed to track a benchmark, and therefore not
constrained by the composition of a benchmark.
Under
normal circumstances, the Fund’s average portfolio duration will be one year or
less. In certain market conditions, such as in periods
of significant volatility in interest rates and spreads, the Fund’s duration may
be longer than one year. During periods when the
Fund’s average duration is longer than one year, the Fund may not achieve its
investment objective.
Process
The
Fund will only invest in investment grade securities as assessed at the time of
purchase. The Fund invests principally in U.S. dollar-denominated
debt securities. A debt security is considered investment grade when assigned a
credit quality rating of BBB- or higher
by S&P or an equivalent rating by another NRSRO, including Moody’s Investors
Service or Fitch Ratings, or Kroll Bond Rating
Agency, LLC for securitized debt instruments only (such as ABS and MBS) or if
unrated, considered to be of comparable credit
quality by the Adviser. For purposes of rating restrictions, if securities are
rated differently by two or more rating agencies, the highest
rating is used.
The
Fund invests principally in bonds issued by U.S. corporations, the U.S.
Government or its agencies, and GSEs such as the FNMA
and FHLMC. The Fund also may invest in trust preferred securities, money market
instruments and taxable municipal obligations.
The
Fund may invest up to 50% of its net assets in ABS and MBS that represent
interests in pools of mortgage loans (MBS) or other assets
(ABS) assembled for sale to investors by various U.S. governmental agencies,
government-related organizations and private issuers.
MBS may include CMOs and CMBS. The Fund may invest up to 25% of its net assets
in non-agency ABS and MBS.
The
Fund may also invest up to 25% of its net assets in foreign debt securities.
Foreign debt securities include ADRs. The Fund may engage
in forward foreign currency exchange contracts to seek to hedge against the
decline in the value of currencies in which its portfolio
holdings are denominated against the U.S. dollar. The Fund may also lend its
securities.
The
Fund will concentrate its investments in the banking industry. Therefore, under
normal conditions, the Fund will invest more than
25% of its total assets in securities issued by issuers in the banking industry.
The Fund may, however invest less than 25% of its total
assets in this industry as a temporary defensive measure.
The
portfolio managers are responsible for fundamental analysis and security
selection, incorporating ESG information provided by ESG
analysts at Calvert. The Fund seeks to invest in issuers that manage ESG risk
exposures adequately and that are not exposed to excessive
ESG risk through their principal business activities. Issuers are analyzed
by Calvert’s ESG analysts utilizing The Calvert Principles
for Responsible Investment, a framework for considering ESG factors (a copy of
which is included as an appendix to the Fund’s
Prospectus). Management of the Fund involves consideration of numerous factors
other than ESG, such as quality of business franchises,
financial strength, management quality and security structural and collateral
considerations. The portfolio managers may also
use sector rotation and relative value strategies in their management of the
Fund. The portfolio managers may sell a security when
the Adviser’s valuation target is reached, the fundamentals of the investment
change or to pursue more attractive investment options.
A security will also be sold (in accordance with the Adviser’s guidelines and at
a time and in a manner that is determined to be
in the best interests of shareholders) if the Adviser determines that the issuer
does not operate in a manner consistent with the Fund’s
responsible investment criteria. The portfolio managers intend to focus on risk
management and also seek to preserve capital to
the extent consistent with the Fund’s investment objective. The Fund intends to
seek to manage investment risk by maintaining broad
issuer and industry diversification among its holdings, and by utilizing
fundamental analysis of risk/return characteristics in
securities
selection. The Fund seeks to manage duration and any hedging of interest rate
risk through the purchase and sale of U.S. Treasury
securities and related futures contracts (which are a type of derivative
instrument).
Although
the Fund’s ESG factors and responsible investing criteria are typically
considered with respect to each company or issuer in which
the Fund invests, other factors may be considered by the portfolio management
team. In assessing investments, Calvert generally
focuses on the ESG factors and responsible investing criteria relevant to the
issuer’s operations, and an issuer may be acceptable
for investment based primarily on such assessment. As a result, securities may
be deemed suitable for investment even if the
issuer does not operate in accordance with all elements of the Fund’s ESG
factors and responsible investing criteria. For instance, the
Fund may also invest in issuers that Calvert believes are likely to operate in
accordance with the Calvert Principles pending Calvert’s
engagement activity with such issuer. Additionally, the Fund may invest in cash,
money market instruments and ETFs. Such
investments will generally not be subject to the Fund’s responsible investment
analysis and will not be required to be consistent with
the Fund’s ESG factors and responsible investment criteria otherwise applicable
to investments made by the Fund. In addition, ETFs
in which the Fund may invest may hold securities of issuers that do not operate
in accordance with the Fund’s ESG factors and responsible
investment criteria.
Calvert | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks
|
| |
This
section discusses additional information relating to Fund investment
strategies, other types of investments that the Fund
may make and related risk factors. Fund investment practices and
limitations are also described in more detail in the Statement
of Additional Information (“SAI”), which is incorporated by reference and
legally is a part of this Prospectus. For details
on how to obtain a copy of the SAI and other reports and information, see
the back cover of this Prospectus. |
Economies
and financial markets worldwide have recently experienced periods of increased
volatility, uncertainty, distress, government
spending, inflation and disruption to consumer demand, economic output and
supply chains. To the extent these conditions
continue, the risks associated with an investment in the Fund, including those
described below, could be heightened and the
Fund’s investments (and thus a shareholder’s investment in the Fund) may be
particularly susceptible to sudden and substantial losses,
reduced yield or income or other adverse developments. The occurrence, duration
and extent of these or other types of adverse economic
and market conditions and uncertainty over the long term cannot be reasonably
projected or estimated at this time.
The
Fund is not a money market fund (or equivalent to a money market fund), does not
attempt to maintain a stable net asset value, and
is not subject to the rules that govern the quality, maturity, liquidity, and
other features of securities that money market funds may
purchase. Under normal conditions, the Fund’s investments are generally more
susceptible than a money market fund to interest rate
risk, valuation risk, credit risk, and other risks relevant to the Fund’s
investments.
The
name, investment objective and policies of the Fund are similar to other funds
advised by the Adviser or its affiliates. However, the
investment results of the Fund may be higher or lower than, and there is no
guarantee that the investment results of the Fund will be
comparable to, any such other funds for any period of time. The Fund may be more
significantly affected by purchases and redemptions
of its Creation Units (as defined below) than a fund with relatively greater
assets under management would be affected by
purchases and redemptions of its shares. As compared to a larger fund, the Fund
is more likely to sell a comparatively large portion of
its portfolio to meet significant Creation Unit redemptions or invest a
comparatively large amount of cash to facilitate Creation Unit
purchases, in each case when the Fund otherwise would not seek to do so. Such
transactions may cause the Fund to make investment
decisions at inopportune times or prices or miss attractive investment
opportunities. Such transactions may also accelerate the
realization of taxable income if sales of securities resulted in gains and the
Fund redeems Creation Units for cash, or otherwise cause
a fund to perform differently than intended. While such risks may apply to funds
of any size, such risks are heightened in funds with
fewer assets under management.
Fixed-Income
Securities
Fixed-income
securities are securities that pay a fixed or a variable rate of interest until
a stated maturity date. Fixed-income securities include
U.S. government securities, securities issued by federal or federally sponsored
agencies and instrumentalities, corporate bonds and
notes, asset-backed securities, mortgage-backed securities, securities rated
below investment grade (commonly referred to as “junk
bonds” or “high yield/high risk securities”), municipal bonds, loan
participations and assignments, zero coupon bonds, Eurobonds,
Brady Bonds, Yankee Bonds, repurchase agreements, commercial paper and cash
equivalents.
Fixed-income
securities are subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from, among other things,
interest rate sensitivity (i.e., interest rate risk), market
perception of the creditworthiness of the issuer and general market liquidity
(i.e., market risk). The Fund may face a heightened
level of interest rate risk in times of monetary policy change and/or
uncertainty, such as when the Federal Reserve Board adjusts
a quantitative easing program and/or changes rates. A changing interest rate
environment increases certain risks, including the potential
for periods of volatility, increased redemptions, shortened durations (i.e.,
prepayment risk) and extended durations (i.e., extension
risk).
Fixed
income and other debt instruments, including mortgage- and other asset-backed
securities, are subject to prepayment risk, which
is the risk that the principal of such obligation is paid earlier than expected,
such as in the case of refinancing. This risk is increased
during periods of declining interest rates and prepayments may reduce the Fund’s
yield or income as a result of reinvesting the
income or other proceeds in lower yielding securities or instruments. These
investments are also subject to extension risk, which is the
risk that the principal of such obligation is paid lower or later than expected.
This may negatively affect Fund returns, as the value of
the investment decreases when principal payments are made later than expected.
This risk is elevated during periods of increasing interest
rates. In addition, because principal payments are made later than expected, the
investment’s duration may extend (and result in
increased interest rate risk) and the Fund may be prevented from investing
proceeds it would otherwise have received at the higher prevailing
interest rates. Prepayments and extensions may result in a security or debt
instrument offering less potential for gains during
periods of declining interest rates or rising interest rates,
respectively.
Securities
with longer durations are likely to be more sensitive to changes in
interest rates, generally making them more volatile than securities
with shorter durations. Lower rated fixed-income securities have greater
volatility because there is less certainty that principal
and interest payments will be made as scheduled. The Fund may be subject to
liquidity risk, which may result from the lack of
an active market and the reduced number and capacity of traditional market
participants to make a market in fixed-income
Calvert | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks (Con’t)
securities.
Fixed-income securities may be called (i.e., redeemed by the issuer) prior to
final maturity. If a callable security is called, the
Fund may have to reinvest the proceeds at a lower rate of interest.
Duration
Duration
is a measure of the expected life of a bond that is used to determine the
sensitivity of an instrument’s price to changes in interest
rates. Thus, the average duration of a portfolio of fixed-income securities
represents its exposure to changing interest rates. For
example, when the level of interest rates increases by 1%, a fixed-income
security having a positive duration of four years generally
will decrease in value by 4%; when the level of interest rates decreases by 1%,
the value of that same security generally will increase
by 4%. A portfolio with a shorter average duration generally will experience
less price volatility in response to changes in interest
rates than a portfolio with a longer average duration.
Measures
such as average duration may not accurately reflect the true interest rate
sensitivity of the Fund, particularly if the Fund consists
of securities with widely varying durations. As a result, if the Fund has an
average duration that suggests a certain level of interest
rate risk, the Fund may in fact be subject to greater interest rate risk than
the average would suggest. This risk is greater to the extent
the Adviser uses leverage or derivatives in connection with the management of
the Fund.
Credit
and Interest Rate Risk
Fixed-income
securities, such as bonds, generally are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the
possibility that the issuer or guarantor of a security will be unable or
unwilling or perceived to be unable or unwilling to make interest
payments and/or repay the principal on its debt. The risk of defaults across
issuers and/or counterparties increases in adverse market
and economic conditions. Interest rate risk refers to fluctuations in the value
of (or yield or income generated by) a fixed-income
or other debt security resulting from changes in the general level of interest
rates. When the general level of interest rates goes up,
the prices of most fixed-income securities go down. When the general level of
interest rates goes down, the prices of most fixed-income
securities go up To the extent the Fund invests in variable and floating rate
securities, although these instruments are generally
less sensitive to interest rate changes than fixed rate instruments, the value
of these securities may decline if their interest rates
do not rise as quickly, or as much, as general interest rates. A low interest
rate environment may prevent the Fund from providing
a positive yield or paying Fund expenses out of current income. The Fund may
face a heightened level of interest rate risk in
times of monetary policy change and/or uncertainty, such as when the Federal
Reserve Board adjusts a quantitative easing program and/or
changes rates. For example, during periods when interest rates are low, the
Fund’s yield (and total return) also may be low or otherwise
adversely affected or the Fund may be unable to maintain positive returns.
Monetary policies, and market interest rates, are subject
to change at any time and potentially frequently based on a variety of market
and economic conditions. The impact on fixed income
and other debt instruments from interest rate changes, regardless of the cause,
could be significant and could adversely affect the
Fund and its investments. Credit ratings may not be an accurate assessment of
liquidity or credit risk. Although credit ratings may
not accurately reflect the true credit risk of an instrument, a change in the
credit rating of an instrument or an issuer can have a rapid,
adverse effect on the instrument’s liquidity and make it more difficult for the
Fund to sell at an advantageous price or time.
In
addition, under certain conditions, there may be an increasing amount of issuers
that are unprofitable, have little cash on hand and/or
are unable to pay the interest owed on their debt obligations and the number of
such issuers may increase if demand for their goods
and services falls, borrowing costs rise due to governmental action or inaction
or other reasons.
Low
or high interest rates could magnify the risks associated with changes in
interest rates. In general, changing interest rates could have
unpredictable effects on markets and may expose debt and related markets to
heightened volatility and may detract from Fund performance
to the extent the Fund is exposed to such interest rates and/or
volatility.
Governmental
authorities and regulators may enact significant fiscal and monetary policy
changes, which present heightened risks to debt
instruments, and such risks could be even further heightened if these actions
are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Asset-Backed
Securities
Asset-backed
securities apply the securitization techniques used to develop mortgage-backed
securities to a broad range of other assets.
Various types of assets, primarily automobile and credit card receivables and
home equity loans, are pooled and securitized in pass-through
structures similar to pass-through structures developed with respect to mortgage
securitizations. Asset-backed securities have
risk characteristics similar to mortgage-backed securities. Like mortgage-backed
securities, they generally decrease in value as a result
of interest rate increases, but may benefit less than other fixed-income
securities from declining interest rates, principally because
of prepayments (i.e., when a borrower pays back the principal of a debt
obligation earlier than expected). Also, as in the case of
mortgage-backed securities, prepayments generally increase during a period of
declining interest rates, although other factors, such as
changes in credit use and payment patterns, may also influence prepayment rates.
Asset-backed securities also involve the risk that various
federal and state consumer laws and other legal and economic factors may result
in the collateral backing the securities being insufficient
to support payment on the securities.
Calvert | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks (Con’t)
To
the extent the Fund invests in asset-backed securities issued by
non-governmental issuers, such as commercial banks, savings and loan
institutions, and other secondary market issuers, the Fund will be exposed to
additional risks because, among other things, there are
no direct or indirect government or agency guarantees of payments in the pools
underlying the securities. Privately-issued asset-backed
securities may be less readily marketable, subject to heightened credit risk and
the market for such securities is typically smaller
and less liquid than other asset-backed securities.
Mortgage-Backed
Securities
Mortgage-backed
securities are fixed-income securities representing an interest in a pool of
underlying mortgage loans. They are sensitive
to changes in interest rates, but may respond to these changes differently from
other fixed-income securities due to the possibility
of prepayment of the underlying mortgage loans (i.e., when a borrower pays back
the principal of a debt obligation earlier than
expected). As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed
security. Rising interest rates tend to discourage refinancings, with the
result that the average life and volatility of the security will
increase and its market price will decrease. When interest rates fall, however,
mortgage-backed securities may not gain as much in market
value because additional mortgage prepayments must be reinvested at lower
interest rates. Prepayment risk may make it difficult
to calculate the average maturity of a portfolio of mortgage-backed securities
and, therefore, to assess the volatility risk of that
portfolio.
The
Fund may invest in mortgage-backed securities that are issued or guaranteed
by the U.S. Government, its agencies or instrumentalities.
These securities are either direct obligations of the U.S. Government or the
issuing agency or instrumentality has the
right to borrow from the U.S. Treasury to meet its obligations although it is
not legally required to extend credit to the agency or instrumentality.
Certain of these mortgage-backed securities purchased by the Fund, such as those
issued by the Government National
Mortgage Association and the Federal Housing Administration, are backed by the
full faith and credit of the United States. Other
of these mortgage-backed securities purchased by the Fund, such as those issued
by the FNMA
and FHLMC, are not backed by
the full faith and credit of the United States and there is a risk that the U.S.
Government will not provide financial support to these
agencies if it is not obligated to do so by law. The maximum potential liability
of the issuers of some of the mortgage-backed securities
held by the Fund may greatly exceed its current resources, including their legal
right to support from the U.S. Treasury. It is
possible that these issuers will not have the funds to meet their payment
obligations in the future.
To
the extent the Fund invests in mortgage-backed securities issued by
non-governmental issuers, such as commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers, the Fund may be subject
to additional risks. Pools created by such non-governmental issuers generally
offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or
agency guarantees of payments in such pools. However,
timely payment of interest and principal of these pools may be supported by
various forms of private insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
intent. The insurance and guarantees are issued by
governmental entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
Mortgage pools underlying mortgage-backed securities
offered by non-governmental issuers more frequently include second mortgages,
high loan-to-value ratio mortgages and manufactured
housing loans, in addition to commercial mortgages and other types of mortgages
where a government or government-sponsored
entity guarantee is not available. An unexpectedly high rate of defaults on the
mortgages held by a mortgage pool may adversely
affect the value of a mortgage-backed security and could result in losses to the
Fund. The risk of such defaults is generally higher
in the case of mortgage pools that include subprime mortgages. Subprime
mortgages refer to loans made to borrowers with weakened
credit histories or with a lower capacity to make timely payments on their
mortgages. For these reasons, the loans underlying
these securities have had in many cases higher default rates than those loans
that meet government underwriting requirements.
The risk of non-payment is greater for mortgage-related securities that are
backed by loans that were originated under weak
underwriting standards, including loans made to borrowers with limited means to
make repayment. A level of risk exists for all loans,
although, historically, the poorest performing loans have been those classified
as subprime. Other types of privately issued mortgage-related
securities, such as those classified as pay-option adjustable rate or Alt-A,
have also performed poorly.
Non-agency
mortgage-backed securities are not traded on an exchange and there may be a
limited market for the securities, especially when
there is a perceived weakness in the mortgage and real estate market sectors.
Without an active trading market, mortgage-related
securities held in the Fund’s portfolio may be particularly difficult to value
because of the complexities involved in assessing the
value of the underlying mortgage loans or to sell. Non-agency mortgage-backed
securities include securities that reflect an interest in,
and are secured by, mortgage loans on commercial real property. Many of the
risks of investing in CMBS reflect the risks of investing
in the real estate securing the underlying mortgage loans. These risks reflect
the effects of local and other economic conditions
on real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants.
The
risks associated with mortgage-backed securities are elevated in distressed
economic, market, health and labor conditions, notably,
increased levels of unemployment, delays and delinquencies in payments of
mortgage and rent obligations, and uncertainty regarding
the effects and extent of government intervention with respect to mortgage
payments and other economic matters.
Calvert | Additional
Information About Fund Investment Strategies and Related Risks
Additional
Information About Fund Investment Strategies and Related Risks (Con’t)
Delinquencies,
defaults and losses on residential mortgage loans may increase substantially
over certain periods, which may affect the performance
of the mortgage-backed securities in which the Fund may invest. Mortgage loans
backing non-agency mortgage-backed securities
are more sensitive to economic factors that could affect the ability of
borrowers to pay their obligations under the mortgage loans
backing these securities. In addition, housing prices and appraisal values in
many states and localities over certain periods have declined
or stopped appreciating. A sustained decline or an extended flattening of those
values may result in additional increases in delinquencies
and losses on mortgage-backed securities generally (including the
mortgaged-backed securities that the Fund may invest
in as described above). Adverse changes in market conditions and regulatory
climate may reduce the cash flow which the Fund, to
the extent it invests in mortgage-backed securities or other asset-backed
securities, receives from such securities and increase the incidence
and severity of credit events and losses in respect of such securities. In the
event that interest rate spreads for mortgage-backed
securities and other asset-backed securities widen following the purchase of
such assets by the Fund, the market value of such securities
is likely to decline and, in the case of a substantial spread widening, could
decline by a substantial amount. Furthermore, adverse
changes in market conditions may result in reduced liquidity in the market for
mortgage-backed securities and other asset-backed
securities (including the mortgage-backed securities and other asset-backed
securities in which the Fund may invest) and an unwillingness
by banks, financial institutions and investors to extend credit to servicers,
originators and other participants in the market
for mortgage-backed and other asset-backed securities. As a result, the
liquidity and/or the market value of any mortgage-backed
or asset-backed securities that are owned by the Fund may experience declines
after they are purchased by the Fund.
Collateralized Mortgage
Obligations. CMOs are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities (collectively
“Mortgage Assets”). Payments of principal and interest on the Mortgage Assets
and any reinvestment income are used to make
payments on the CMOs. CMOs are issued in multiple classes. Each class has a
fixed or floating rate and a stated maturity or final
distribution date. The principal and interest on the Mortgage Assets may be
allocated among the classes in a number of different ways.
Certain classes will, as a result of the allocation, have more predictable cash
flows than others. As a general matter, the more predictable
the cash flow, the lower the yield relative to other Mortgage Assets. The less
predictable the cash flow, the higher the yield and
the greater the risk. The Fund may invest in any class of CMO, including classes
that vary inversely with interest rates and may be
more volatile and sensitive to prepayment rates.
The
principal and interest on the Mortgage Assets comprising a CMO may be allocated
among the several classes of a CMO in many ways.
The general goal in allocating cash flows on Mortgage Assets to the various
classes of a CMO is to create certain tranches on which
the expected cash flows have a higher degree of predictability than do the
underlying Mortgage Assets. As a general matter, the more
predictable the cash flow is on a particular CMO tranche, the lower the
anticipated yield on that tranche at the time of issue will
be relative to the prevailing market yields on the Mortgage Assets. As part of
the process of creating more predictable cash flows on
certain tranches of a CMO, one or more tranches generally must be created that
absorb most of the changes in the cash flows on the
underlying Mortgage Assets. The yields on these tranches are generally higher
than prevailing market yields on other mortgage related
securities with similar average lives. Principal prepayments on the underlying
Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Because of the uncertainty of the cash flows on these
tranches, the market prices and yields of these tranches are more volatile and
may increase or decrease in value substantially with
changes in interest rates and/or the rates of prepayment relative to other
tranches. Due to the possibility that prepayments (on home
mortgages and other collateral) will alter the cash flow on CMOs, it is
not possible to determine in advance the final maturity date
or average life. Faster prepayment will shorten the average life and slower
prepayments will lengthen it. In addition, if the collateral
securing CMOs or any third party guarantees are insufficient to make payments,
the Fund could sustain a loss.
Stripped
Mortgage-Backed Securities.
Stripped mortgage-backed securities (“SMBS”) are derivative multi-class
mortgage-backed securities. SMBS
may be issued by agencies or instrumentalities of the U.S. Government, or by
private originators. A common type of
SMBS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class receives
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest
only or “IO” class), while the other class will receive all of the principal
(the principal-only or “PO” class). Investments in each
class of SMBS are extremely sensitive to changes in interest rates. IOs tend to
decrease in value substantially if interest rates decline
and prepayment rates become more rapid. POs tend to decrease in value
substantially if interest rates increase and the rate of prepayment
decreases. If the Fund invests in SMBS and interest rates move in a manner
not anticipated by management, it is possible
that the Fund could lose all or substantially all of its
investment.
Commercial
Mortgage-Backed Securities.
CMBS are generally multi-class or pass-through securities backed by a
mortgage loan or a pool
of mortgage loans secured by commercial property, such as industrial and
warehouse properties, office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments. The commercial
mortgage loans that underlie CMBS are generally
not amortizing or not fully amortizing. That is, at their maturity date,
repayment of their remaining principal balance or “balloon”
is due and is repaid through the attainment of an additional loan or sale of the
property. An extension of a final payment on
commercial mortgages will increase the average life of the CMBS, generally
resulting in a lower yield for discount bonds and a higher
yield for premium bonds.
CMBS
are subject to credit risk and prepayment risk, among other risks. Although
prepayment risk is present, it is of a lesser degree in
the CMBS market than in the residential mortgage market; commercial real estate
property loans often contain provisions that
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substantially
reduce the likelihood that such securities will be prepaid (e.g., significant
prepayment penalties on loans and, in some cases,
prohibition on principal payments for several years following
origination).
The
values of, and income generated by, CMBS may be adversely affected by changing
interest rates, tightening lending standards, and
other developments impacting the commercial real estate market, such as
population shifts and other demographic changes, increasing
vacancies (potentially for extended periods) and reduced demand for commercial
and office space as well as maintenance or
tenant improvement costs and costs to convert properties for other uses. These
developments could result from, among other things,
changing tastes and preferences (such as remote work arrangements) as well as
cultural, technological, global or local economic
and market developments. In addition, changing interest rate environments and
associated changes in lending standards and
higher refinancing rates may adversely affect the commercial real estate and
CMBS markets. The occurrence of any of the foregoing
or similar developments would likely increase default risk for the properties
and loans underlying these investments as well as
impact the value of, and income generated by, these investments. These
developments could also result in reduced liquidity for CMBS.
U.S.
Treasury and Government Securities
The
U.S. government securities that the Fund may purchase include U.S. Treasury
bills, notes and bonds, all of which are direct obligations
of the U.S. Government. In addition, the Fund may purchase securities issued or
guaranteed by agencies and instrumentalities
of the U.S. Government which are backed by the full faith and credit of the
United States. Among the agencies and instrumentalities
issuing these obligations are the Government National Mortgage Association and
the Federal Housing Administration.
Also, the Fund may purchase securities issued by agencies and instrumentalities
which are not backed by the full faith
and credit of the United States, but whose issuing agency or instrumentality has
the right to borrow, to meet its obligations, from
the U.S. Treasury. Among these agencies and instrumentalities are FNMA, the
FHLMC and the Federal Home Loan Banks. Further,
the Fund may purchase securities issued by agencies and instrumentalities which
are backed solely by the credit of the issuing
agency or instrumentality. Among these agencies and instrumentalities is the
Federal Farm Credit System. Because these securities
are not backed by the full faith and credit of the United States, there is a
risk that the U.S. Government will not provide financial
support to these agencies if it is not obligated to do so by law, and therefore
these U.S. government securities involve greater credit
risk than other types of U.S. government securities. The maximum potential
liability of the issuers of some U.S. government securities
held by the Fund may greatly exceed their current resources, including their
legal right to support from the U.S. Treasury. It
is possible that these issuers will not have the funds to meet their payment
obligations in the future. The interest from U.S. government
securities generally is not subject to state and local taxation. In addition,
uncertainty regarding the status of negotiations in
the U.S. government to increase the statutory debt ceiling could increase the
risk that the U.S. government may default on payments
on certain U.S. government securities and may cause the credit rating of the
U.S. government to be downgraded. Any uncertainty
regarding the ability of the United States to repay its debt obligations, and
any default by the U.S. government, would have
a negative impact on the Fund’s investments in U.S. government
securities.
Money
Market Instruments
Money
market instruments may be adversely affected by market and economic events, such
as a change in prevailing short-term interest
rates; adverse developments in the banking industry, which issues or guarantees
many money market instruments; adverse economic,
political or other developments affecting issuers of money market instruments;
changes in the credit quality of issuers; and default
by a counterparty or an issuer. These instruments may be subject to federal
income, state income and/or other taxes. Instead of
investing in money market instruments directly, the Fund may invest money market
funds, including those advised by the Adviser or
its affiliates. These instruments may be adversely affected by changes to
interest rates, which may be sudden and significant. During
unusual market conditions, the Fund may invest up to 100% of its assets in cash
or cash equivalents temporarily, which may be
inconsistent with its investment objective(s) and other policies.
Preferred
Securities
Preferred
securities are subject to risks applicable generally to equity securities. In
addition, a company’s preferred securities generally pay
dividends only after the company makes required payments to holders of its bonds
and other debt, so the value of preferred securities
will usually react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition
or prospects. Preferred securities may pay fixed or adjustable rates of return.
Like fixed-income securities, preferred stock generally
decreases in value if interest rates rise and increases in value if interest
rates fall.
Municipals
Municipal
securities (also referred to as municipal obligations) include debt obligations
of states, territories or possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, such as local or regional governments.
The interest on municipal securities is generally exempt from federal income tax
at the time of issuance, in the opinion of
bond counsel or other counsel to the issuers of such securities. However, the
Fund may purchase municipal securities that pay interest
that is subject to the federal alternative minimum tax, and municipal securities
on which the interest payments are taxable. Municipal
securities typically are “general obligation” or “revenue” bonds, notes or
commercial paper, including participations in lease
obligations and installment purchase contracts of municipalities. General
obligation bonds are secured by the issuer’s full faith and
credit including its taxing power for payment of principal and interest. Revenue
bonds, however, are generally payable from a
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specific
revenue source. Revenue bonds are issued for a wide variety of projects such as
financing public utilities, hospitals, housing, airports,
highways and educational facilities. These types of bonds involve the risk that
the tax or other revenues so derived will not be
sufficient to meet interest and/or principal payment obligations.
Municipal
obligations may have fixed, variable or floating rates. Because the Fund may
invest in municipal securities, the Fund may be
affected significantly by the economic, regulatory, legislative, tax or
political developments affecting the ability of issuers of municipal
securities to pay interest or repay principal. The risks of municipal securities
generally depend on the financial and credit status
of the issuer and may rely on a specific stream of revenue associated with a
project or other revenue source. Thus, adverse developments
related to a municipality’s ability to raise revenue, including through its
taxing authority, or the failure of specific revenues
to materialize would negatively impact such investments. These factors, which
may also impact other municipal obligations, include,
among others, changing demographic trends, such as population shifts or changing
tastes and values, or increasing vacancies or
declining rents resulting from legal, cultural, technological, global or local
economic developments, as well as reduced demand for properties,
revenues or goods. Changes in the financial health of an issuer of municipal
securities may make it difficult for the issuer to
make interest and principal payments when due. Some municipalities or issuers of
municipal securities have had significant financial
problems recently, and these and other municipalities or issuers of municipal
securities could, potentially, continue to experience
significant financial problems resulting from lower tax or other revenues and/or
decreased aid from state and local governments
in the event of an economic downturn. In addition, adverse legislative, tax,
regulatory, demographic or political changes may
negatively impact the Fund’s investments in municipal securities. These events
could decrease the Fund’s income and/or adversely
affect the Fund’s performance and investments. Municipal securities also involve
the risk that an issuer may call securities for
redemption, which could force the Fund to reinvest the proceeds at a lower rate
of interest, and the value of municipal securities may
be affected by the rights of municipal security holders. Municipal securities
may be more susceptible to downgrades, defaults or loss
of tax or other revenue during recessions or similar periods of economic stress.
Factors contributing to the financial stress on municipalities
and issuers of municipal securities may include, among other developments, lower
property tax collections as a result of
lower home values, lower sales tax revenue as a result of consumers cutting back
spending and lower income tax revenue as a result of
a higher unemployment rate. In addition, because some municipal obligations may
be secured or guaranteed by banks and other institutions,
the risk to the Fund associated with investments in such municipal securities
could increase if the banking or financial sector
suffers an economic downturn and/or if the credit ratings of the institutions
issuing the guarantee are downgraded or at risk of being
downgraded by a national rating organization. If such events occur, the value of
the security could decrease or the value could be
lost entirely, and it may be difficult or impossible for the Fund to sell the
security at the time and the price that normally prevails in
the market.
For
example, recent public health emergencies have significantly stressed the
financial resources of many municipalities and other issuers
of municipal securities, which may impair their ability to meet their financial
obligations and may harm the value or liquidity of
the Fund’s investments in municipal securities (or the income generated by such
investments). In particular, responses by municipalities
to recent public health emergencies have caused disruptions in business
activities. These and other effects of recent public
health emergencies, such as increased unemployment levels, have impacted tax and
other revenues of municipalities and other issuers
of municipal securities and the financial conditions of such issuers. As a
result, there is an increased budgetary and financial pressure
on municipalities and other issuers of municipal securities and heightened risk
of default or other adverse credit or similar events
for issuers of municipal securities, which would adversely impact the Fund’s
investments.
In
addition, the ability of an issuer to make payments or repay interest may be
affected by litigation or bankruptcy. In the event of bankruptcy
of such an issuer, the Fund investing in the issuer’s securities could
experience delays in collecting principal and interest, and
the Fund may not, in all circumstances, be able to collect all principal and
interest to which it is entitled. To enforce its rights in the
event of a default in the payment of interest or repayment of principal, or
both, the Fund may, in some instances, take possession of,
and manage, the assets securing the issuer’s obligations on such securities,
which may increase the Fund’s operating expenses. Any income
derived from the Fund’s ownership or operation of such assets may not be
tax-exempt. Municipal securities are subject to, among
other risks, credit and interest rate risk, liquidity risk and market and
geopolitical risk.
Because
many municipal securities are issued to finance similar projects (such as those
relating to education, health care, housing, transportation,
and utilities), conditions in those sectors may affect the overall municipal
securities market. In addition, changes in the
financial condition of an individual municipal issuer can affect the overall
municipal market. Municipal securities backed by current
or anticipated revenues from a specific project or specific assets can be
negatively affected by the discontinuance of the supporting
taxation or the inability to collect revenues for the specific project or
specific assets.
Some
municipal securities are subject to the risk that the U.S. Internal Revenue
Service (“IRS”) may determine that an issuer has not complied
with applicable tax requirements (or the occurrence of other adverse tax
developments) and that interest from the municipal
security is taxable, which may result in a significant decline in the value of
the security. In addition, interest on municipal obligations,
while generally exempt from federal income tax, may not be exempt from the
federal alternative minimum tax. Municipal
securities may be less liquid than taxable bonds and there may be less publicly
available information on the financial condition
of municipal security issuers than for issuers of other securities, and the
investment performance of the Fund investing in municipal
securities may therefore be more dependent on the analytical abilities of the
Adviser than if the Fund held other types of
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investments
such as stocks or taxable bonds. The secondary market for municipal securities
also tends to be less well developed or liquid
than many other securities markets, which may adversely affect the Fund’s
ability to sell municipal securities it holds at attractive
prices or value municipal securities. In addition, the demand for municipal
securities is strongly influenced by the value of tax-exempt
income to investors and lower income tax rates could reduce the advantage of
owning municipal securities, which may also
adversely affect the value and liquidity of municipal securities.
Trust
Preferred Securities
Trust
preferred securities are convertible preferred shares issued by a trust where
proceeds from the sale are used to purchase convertible
subordinated debt from the issuer which is typically a financial institution,
such as a bank holding company. The convertible
subordinated debt is the sole asset of the trust. The coupon from the issuer to
the trust exactly mirrors the preferred dividend
paid by the trust. Upon conversion by the investors, the trust in turn converts
the convertible debentures and passes through
the shares to the investors. The risks associated with trust preferred
securities generally include, among others, the financial condition
of the issuer, as the trust typically has no business operations other than
holding the subordinated debt and issuing the trust
preferred securities. In addition, holders of trust preferred securities have
limited voting rights to control the activities of the trust
and no voting rights with respect to the issuer. The market value of trust
preferred securities may be more volatile than those of conventional
debt securities. There can be no assurance as to the liquidity of trust
preferred securities and the ability of holders, such as
a Fund, to sell their holdings. If an issuer is financially unsound and defaults
on interest payments to the trust, the trust will not be able
to make dividend payments to holders of the trust preferred securities, such as
a Fund.
Foreign
Investing
To
the extent that the Fund invests in foreign issuers, there is the risk that news
and events unique to a country or region will affect those
markets and their issuers. These same events will not necessarily have an effect
on the U.S. economy or similar issuers located in the
United States. In addition, some of the Fund’s
securities, including underlying securities represented by depositary receipts,
may be
denominated in foreign currencies. As a result, changes in the value of a
country’s currency compared to the U.S. dollar may affect the
value of the Fund’s investments. These changes may happen separately from, and
in response to, events that do not otherwise affect
the value of the security in the issuer’s home country. These risks may be
intensified for the Fund’s investments in securities of issuers
located in emerging market or developing countries.
Foreign
Securities
Foreign
issuers generally are subject to different accounting, auditing and financial
reporting standards than U.S. issuers. There may be
less information available to the public about foreign issuers. Securities of
foreign issuers can be less liquid and experience greater price
movements. In addition, the prices of such securities may be susceptible to
influence by large traders, due to the limited size of many
foreign securities markets. Moreover, investments in certain foreign markets
that have historically been considered stable may become
more volatile and subject to increased risk due to developments and changing
conditions in such markets. Also, the growing interconnectivity
of global economies and financial markets has increased the probability that
adverse developments and conditions
in one country or region will affect the stability of economies and financial
markets in other countries or regions. In some foreign
countries, there is also the risk of government expropriation, excessive
taxation, political or social instability, the imposition of currency
controls or diplomatic developments that could affect the Fund’s investment.
There also can be difficulty obtaining and enforcing
judgments against issuers in foreign countries. Foreign stock exchanges,
broker-dealers and listed issuers may be subject to less
government regulation and oversight. The cost of investing in foreign
securities, including brokerage commissions and custodial expenses,
can be higher than the cost of investing in domestic securities.
Certain
foreign markets may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments,
the imposition of economic sanctions against a particular country or countries,
organizations, companies, entities and/or
individuals, changes in international trading patterns, trade barriers and other
protectionist or retaliatory measures. International trade
barriers or economic sanctions against foreign countries, organizations,
companies, entities and/or individuals may adversely affect
the Fund’s foreign holdings or exposures. Investments in foreign markets may
also be adversely affected by less stringent investor
protections and disclosure standards, and governmental actions such as the
imposition of capital controls, nationalization of companies
or industries, expropriation of assets or the imposition of punitive taxes.
Governmental actions can have a significant effect
on the economic conditions in foreign countries, which also may adversely affect
the value and liquidity of the Fund’s investments.
Foreign investment in the securities markets of certain foreign countries is
restricted or controlled to varying degrees. For
example, the governments of certain countries may prohibit or impose substantial
restrictions on foreign investing in their capital markets
or in certain sectors or industries. In addition, a foreign government may limit
or cause delay in the convertibility or repatriation
of its currency which would adversely affect the U.S. dollar value and/or
liquidity of investments denominated in that currency.
Moreover, if a deterioration occurs in a country’s balance of payments, the
country could impose temporary restrictions on foreign
capital remittances. The Fund could also be adversely affected by delays in, or
a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investment. Any of these actions could severely affect
security prices, which could result in losses to the Fund and increased
transaction costs, impair the Fund’s ability to purchase or sell
foreign securities or transfer the Fund’s assets back into the United States, or
otherwise adversely affect the Fund’s operations. Certain
foreign investments may become less liquid in response to market developments or
adverse investor perceptions, or become
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illiquid
after purchase by the Fund, particularly during periods of market turmoil.
Certain foreign investments may become illiquid when,
for instance, there are few, if any, interested buyers and sellers or when
dealers are unwilling to make a market for certain securities.
When the Fund holds illiquid investments, its portfolio may be harder to
value.
Economic
sanctions or other similar measures may be, and have been, imposed against
certain countries, organizations, companies, entities
and/or individuals. The Fund’s investments in foreign securities are subject to
trade laws and potential economic sanctions in the
United States and other jurisdictions. These laws and related governmental
actions, including counter-sanctions and other retaliatory
measures, can, from time to time, prevent or prohibit the Fund from investing in
certain foreign securities. In addition, economic
sanctions could prohibit the Fund from transacting with particular countries,
organizations, companies, entities and/or individuals
by banning them from global payment systems that facilitate cross-border
payments, restricting their ability to settle securities
transactions, and freezing their assets. The imposition of sanctions and other
similar measures could, among other things, cause
a decline in the value of securities issued by the sanctioned country or
companies located in, or economically linked to, the sanctioned
country, downgrades in the credit ratings of the sanctioned country or companies
located in, or economically linked to, the
sanctioned country, devaluation of the sanctioned country’s currency, and
increased market volatility and disruption in the sanctioned
country and throughout the world. Economic sanctions or other similar measures
could, among other things, effectively restrict
or eliminate the Fund’s ability to purchase or sell securities, negatively
impact the value or liquidity of the Fund’s investments, significantly
delay or prevent the settlement of the Fund’s securities transactions, force the
Fund to sell or otherwise dispose of investments
at inopportune times or prices, increase the Fund’s transaction costs, make the
Fund’s investments more difficult to value
or impair the Fund’s ability to meet its investment objective or invest in
accordance with its investment strategies. These conditions
may be in place for a substantial period of time and enacted with limited
advance notice to the Fund. Even if the Fund does
not have significant investments in securities affected by sanctions, sanctions
or the threat of sanctions may cause volatility in regional
and global markets and may negatively impact the performance of various sectors
and industries, as well as companies in other
countries, including through global supply chain disruptions, increased
inflationary pressures, and reduced economic activity, which
could have a negative effect on the Fund’s performance. In addition, trade
disputes may affect investor and consumer confidence
and adversely affect financial markets and the broader economy, perhaps suddenly
and to a significant degree. Events such as
these and their impact on the Fund are difficult to predict.
In
addition, the Holding Foreign Companies Accountable Act (the “HFCAA”) could
cause securities of a foreign (non-U.S.) company,
including American Depositary Receipts, to be delisted from U.S. stock exchanges
if the company does not allow the U.S. government
to oversee the auditing of its financial information. Although the requirements
of the HFCAA apply to securities of all foreign
(non-U.S.) issuers, the SEC has thus far limited its enforcement efforts to
securities of Chinese companies. If securities are delisted,
the Fund’s ability to transact in such securities will be impaired, and the
liquidity and market price of the securities may decline.
The Fund may also need to seek other markets in which to transact in such
securities, which could increase the Fund’s costs.
Foreign
Currency
Investments
in foreign securities may be denominated in foreign currencies. The value of
foreign currencies may fluctuate relative to the
value of the U.S. dollar or other applicable foreign currency. Since the
Fund
may invest in non-U.S. dollar-denominated securities,
and therefore may convert the value of such securities into U.S. dollars,
changes in currency exchange rates can increase or decrease
the U.S. dollar value of the Fund’s
assets. Currency exchange rates may fluctuate significantly over short periods
of time for a number
of reasons, including changes in interest rates and the overall economic health
of the issuer. Devaluation of a currency by a country’s
government or banking authority also will have a significant impact on the value
of any investments denominated in that currency.
The Adviser may use derivatives to seek to reduce this risk. The Adviser may in
its discretion choose not to hedge against currency
risk. In addition, certain market conditions may make it impossible or
uneconomical to hedge against currency risk.
Restricted
Securities
The
Fund’s investments may include securities which are subject to resale
restrictions. These securities could have the effect of increasing
the level of Fund illiquidity to the extent the Fund may be unable to sell or
transfer these securities due to restrictions on transfers
or on the ability to find buyers interested in purchasing the securities.
Additionally, the market for certain investments deemed
liquid at the time of purchase may become illiquid under adverse market or
economic conditions. The illiquidity of the market,
as well as the lack of publicly available information regarding these
securities, may also adversely affect the ability to arrive at a
fair value for certain securities at certain times and could make it difficult
for the Fund to sell certain securities. If the Fund is forced to
sell an illiquid security to fund redemptions or for other cash needs, it may be
forced to sell the security at a loss or for less than its fair
value.
Derivatives
The Fund may,
but is not required to, use derivatives and other similar instruments for a
variety of purposes, including hedging, risk management,
portfolio management or to seek to earn income. Derivative instruments used by
the Fund will be counted towards the Fund’s
exposure in the types of securities listed herein to the extent they have
economic characteristics similar to such securities. A derivative
is a financial instrument whose value is based, in part, on the value of an
underlying asset, interest rate, index or financial instrument.
Prevailing interest rates and volatility levels, among other things, also affect
the value of derivative instruments. Derivatives
and other similar instruments that create synthetic exposure often are subject
to risks similar to those of the underlying
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asset
or instrument and may be subject to additional risks, including imperfect
correlation between the value of the derivative and the underlying
asset, risks of default by the counterparty to certain transactions,
magnification of losses incurred due to changes in the market
value of the securities, instruments, indices or interest rates to which the
derivative instrument relates, risks that the transactions
may not be liquid, risks arising from margin and payment requirements, risks
arising from mispricing or valuation complexity
and operational and legal risks. The use of derivatives involves risks that are
different from, and possibly greater than, the risks
associated with other portfolio investments. Derivatives may involve the use of
highly specialized instruments that require investment
techniques and risk analyses different from those associated with other
portfolio investments.
Certain
derivative transactions may give rise to a form of leverage. Leverage magnifies
the potential for gain and the risk of loss. Leverage
associated with derivative transactions may cause the Fund to liquidate
portfolio positions when it may not be advantageous to
do so, or may cause the Fund to be more volatile than if the Fund had not been
leveraged. Although the Adviser seeks to use derivatives
to further the Fund’s investment objective, there is no assurance that the use
of derivatives will achieve this result.
The
derivative instruments and techniques that the Fund may use
include:
Futures.
A futures contract is a standardized, exchange-traded agreement to buy or sell a
specific quantity of an underlying asset, reference
rate or index at a specific price at a specific future time. While the value of
a futures contract tends to increase or decrease in tandem
with the value of the underlying instrument, differences between the futures
market and the market for the underlying asset may
result in an imperfect correlation. Depending on the terms of the particular
contract, futures contracts are settled through either physical
delivery of the underlying instrument on the settlement date or by payment of a
cash settlement amount on the settlement date.
A decision as to whether, when and how to use futures contracts involves the
exercise of skill and judgment and even a well-conceived
futures transaction may be unsuccessful because of market behavior or unexpected
events. In addition to the derivatives risks
discussed above, the prices of futures contracts can be highly volatile, using
futures contracts can lower total return, and the potential
loss from futures contracts can exceed the Fund’s initial investment in such
contracts. No assurance can be given that a liquid
market will exist for any particular futures contract at any particular time.
There is also the risk of loss by the Fund of margin deposits
in the event of bankruptcy of a broker with which the Fund has open
positions in the futures contract.
Liquidity
The
Fund may make investments that are illiquid or restricted or that may become
illiquid or less liquid in response to, among other developments,
overall economic conditions or adverse investor perceptions, and which may
entail greater risk than investments in other
types of securities. Illiquidity can also be caused by, among other things, a
drop in overall market trading volume, an inability to
find a willing buyer, or legal restrictions on the securities’
resale. These investments may be more difficult to value or sell,
particularly
in times of market turmoil, and there may be little trading in the secondary
market available for particular securities. Liquidity
risk may be magnified in a market where credit spread and interest rate
volatility is rising and where investor redemptions from
fixed-income funds may be higher than normal. If the Fund is forced to sell an
illiquid or restricted security to fund redemptions
or for other cash needs, it may be forced to sell the security at a loss or for
less than its fair value and may be unable to sell
the security at all.
Repurchase
Agreements
Repurchase
agreements are fixed-income securities in the form of agreements backed by
collateral. These agreements typically involve the
acquisition by the Fund of securities from the selling institution (such as a
bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at a specified
price and at a fixed time in the future (or on demand,
if applicable). The underlying securities which serve as collateral for the
repurchase agreements entered into by the Fund may
include U.S. government securities, municipal securities, corporate debt
obligations, and common and preferred stock and may be
of below investment grade quality. These securities are marked-to-market daily
in order to maintain full collateralization (typically purchase
price plus accrued interest). The use of repurchase agreements involves certain
risks. For example, if the selling institution defaults
on its obligation to repurchase the underlying securities at a time when the
value of the securities has declined, the Fund may incur
a loss upon disposition of them. The risk of such loss may be greater when
utilizing collateral other than U.S. government securities.
In the event of an insolvency or bankruptcy by the selling institution, the
Fund’s right to control the collateral could be affected
and result in certain costs and delays. Additionally, if the proceeds from the
liquidation of such collateral after an insolvency were
less than the repurchase price, the Fund could suffer a loss. Fund procedures
are followed that are designed to minimize such risks.
Market
and Geopolitical Risk
The
value of your investment in the Fund is based on the values of the Fund’s
investments, which change due to economic and other events
that affect markets generally, as well as those that affect particular regions,
countries, industries, companies or governments. Price
movements, sometimes called volatility, may be greater or less depending on the
types of securities the Fund owns and the markets
in which the securities trade. Volatility and disruption in financial markets
and economies may be sudden and unexpected, expose
the Fund to greater risk, including risks associated with reduced market
liquidity and fair valuation, and adversely affect the Fund’s
operations. For example, the Adviser potentially will be prevented from
executing investment decisions at an advantageous
Calvert | Additional
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Additional
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time
or price as a result of any domestic or global market disruptions and reduced
market liquidity may impact the Fund’s ability to sell
securities to meet redemptions.
The
increasing interconnectivity between global economies and markets increases the
likelihood that events or conditions in one region
or market may adversely impact other companies and issuers in a different
country, region, sector, industry, market or with respect
to one company may adversely impact issuers in a different country, region,
sector, industry, or market. For example, adverse developments
in the banking or financial services sector could impact companies operating in
various sectors or industries and adversely
impact the Fund’s investments. Securities in the Fund’s portfolio may
underperform due to inflation (or expectations for inflation),
interest rates, global demand for particular products or resources, natural
disasters and extreme weather events, health emergencies
(such as epidemics and pandemics), terrorism, regulatory events and governmental
or quasi-governmental actions. The occurrence
of global events, such as terrorist attacks around the world, natural disasters,
health emergencies, social and political (including
geopolitical) discord and tensions or debt crises and downgrades, among others,
may result in market volatility and may have
long term effects on both the U.S. and global financial markets. Inflation rates
may change frequently and significantly because of
various factors, including unexpected shifts in the domestic or global economy
and changes in monetary or economic policies (or expectations
that these policies may change). Changes in expected inflation rates may
adversely affect market and economic conditions,
the Fund’s investments and an investment in the Fund. The market price of
debt securities generally falls as inflation increases
because the purchasing power of the future income and repaid principal is
expected to be worth less when received by the Fund.
The risk of inflation is greater for debt instruments with longer maturities and
especially those that pay a fixed rather than variable
interest rate. Other financial, economic and other global market and
social developments or disruptions may result in similar adverse
circumstances, and it is difficult to predict when similar events affecting the
U.S. or global financial markets may occur, the effects
that such events may have and the duration of those effects (which may last for
extended periods). In general, the securities or other
instruments that the Adviser believes represent an attractive investment
opportunity or in which the Fund seeks to invest may be
unavailable entirely or in the specific quantities sought by the Fund. As a
result, the Fund may need to obtain the desired exposure through
a less advantageous investment, forgo the investment at the time or seek to
replicate the desired exposure through a derivative
transaction or investment in another investment vehicle. Any such event(s) could
have a significant adverse impact on the value
and risk profile of the Fund’s portfolio. There is a risk that you may lose
money by investing in the Fund.
Social,
political, economic and other conditions and events, such as war, natural
disasters, health emergencies (e.g., the novel coronavirus
outbreak, epidemics and other pandemics), terrorism, conflicts, social unrest,
recessions, inflation, interest rate changes and
supply chain disruptions could reduce consumer demand or economic output, result
in market closures, travel restrictions or quarantines,
and generally have a significant impact on the economies and financial markets
and the Adviser’s investment advisory activities
and services of other service providers, which in turn could adversely affect
the Fund’s investments and other operations.
Government
and other public debt, including municipal obligations in which the Fund may
invest, can be adversely affected by changes
in local and global economic conditions that result in increased debt levels.
Although high levels of government and other public
debt do not necessarily indicate or cause economic problems, high levels of debt
may create certain systemic risks if sound debt management
practices are not implemented. A high debt level may increase market pressures
to meet an issuer’s funding needs, which
may increase borrowing costs and cause a government or public or municipal
entity to issue additional debt, thereby increasing the
risk of refinancing. A high debt level also raises concerns that the issuer may
be unable or unwilling to repay the principal or interest
on its debt, which may adversely impact instruments held by the Fund that rely
on such payments.
Governmental
and quasi-governmental responses to certain economic or other conditions may
lead to increasing government and other
public debt, which heighten these risks. Unsustainable debt levels can lead to
declines in the value of currency, and can prevent a
government from implementing effective counter-cyclical fiscal policy during
economic downturns, can generate or contribute to an
economic downturn or cause other adverse economic or market developments, such
as increases in inflation or volatility. Increasing
government and other public debt may adversely affect issuers, obligors,
guarantors or instruments across a variety of asset classes.
Global
events may negatively impact broad segments of businesses and populations, cause
a significant negative impact on the performance
of the Fund’s investments, adversely affect and increase the volatility of the
Fund’s share price, exacerbate pre-existing political,
social and economic risks to the Fund. The Fund’s operations may be interrupted
as a result, which may contribute to the negative
impact on investment performance. In addition, governments, their regulatory
agencies, or self-regulatory organizations may take
actions that affect the instruments in which the Fund invests, or the issuers of
such instruments, in ways that could have a significant
negative impact on the Fund’s investment performance. In addition, government
actions (such as changes to interest rates) could
have unintended economic and market consequences that adversely affect the
Fund’s investments.
Responsible
Investing
Investing
primarily in responsible investments carries the risk that, under certain market
conditions, the Fund may underperform funds
that do not utilize a responsible investment strategy. The application of
responsible investment criteria may affect the Fund’s exposure
to certain sectors or types of investments, and may impact the Fund’s relative
investment performance depending on whether
such sectors or investments are in or out of favor in the market. An
investment’s ESG performance, or Calvert’s and/or the
Calvert | Additional
Information About Fund Investment Strategies and Related Risks
Additional
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Adviser’s
assessment of such performance may change over time, which could cause the Fund
to temporarily hold securities that do not
comply with the Fund’s responsible investment criteria. In evaluating an
investment, Calvert and the Adviser are dependent upon information
and data that may be incomplete, inaccurate or unavailable, which could
adversely affect the analysis of the ESG factors relevant
to a particular investment. Successful application of the Fund’s responsible
investment strategy will depend on Calvert’s and/or
the Adviser’s skill in properly identifying and analyzing material ESG issues.
Regulatory changes or interpretations regarding the definitions
and/or use of ESG criteria could have a material adverse effect on the Fund’s
ability to invest in accordance with its ESG strategy.
Socially responsible norms differ by country and region, and a company’s ESG
practices or Calvert’s and/or the Adviser’s assessment
of such may change over time and there is a risk that the Adviser may
incorrectly assess a company’s ESG practices. The Fund
may invest in companies that do not reflect the beliefs and values of any
particular investor.
Large
Shareholder Transactions Risk
The Fund
may experience adverse effects when certain shareholders, or shareholders
collectively, purchase or redeem large amounts of shares
of the Fund. In addition, a third party investor, the Adviser, or an affiliate
of the Adviser, an authorized participant, a lead market
maker, or another entity (i.e., a seed investor) may invest in the Fund and hold
its investment solely to facilitate commencement
of the Fund or to facilitate the Fund’s achieving a specified size or scale. Any
such investment may be held for a limited
period of time. There can be no assurance that any large shareholder would not
redeem its investment, that the size of the Fund
would be maintained at such levels or that the Fund would continue to meet
applicable listing requirements. Such larger than normal
redemptions may cause the Fund to sell portfolio securities at times when it
would not otherwise do so, which may negatively impact
the Fund’s NAV and liquidity. Similarly, large Fund share purchases may
adversely affect the Fund’s performance to the extent
that the Fund is delayed in investing new cash and is required to maintain a
larger cash position than it ordinarily would. Large
shareholder transactions may also accelerate the realization of taxable income
to shareholders if such sales of investments resulted
in gains, and may also increase transaction costs. In addition, a large
redemption could result in the Fund’s current expenses being
allocated over a smaller asset base, leading to an increase in the Fund’s
expense ratio. Although large shareholder transactions may
be more frequent under certain circumstances, the Fund is generally subject to
the risk that shareholders can purchase or redeem a
significant percentage of Fund shares at any time. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on NYSE Arca and may, therefore, have a material upward or
downward effect on the market price of the shares.
Counterparty
Risk
A
financial institution or other counterparty with whom the Fund does business
(such as trading, securities lending or as a derivatives counterparty),
or that underwrites, distributes or guarantees any instruments that the Fund
owns or is otherwise exposed to, may decline
in financial condition and become unable to honor its commitments. This could
cause the value of Fund shares to decline or could
delay the return or delivery of collateral or other assets to the Fund.
Counterparty risk is increased for contracts with longer maturities.
Securities
Lending
The
Fund may lend its portfolio securities to broker-dealers and other institutional
borrowers. During the existence of a loan, the Fund
will continue to receive the equivalent of the interest paid by the issuer on
the securities loaned, or all or a portion of the interest
on investment of the collateral, if any. The Fund may pay lending fees to such
borrowers. Loans will only be made to firms that
have been approved by the Adviser, and the Adviser or the securities lending
agent will periodically monitor the financial condition
of such firms while such loans are outstanding. Securities loans will only be
made when the Adviser believes that the expected
returns, net of expenses, justify the attendant risks. Securities loans
currently are required to be secured continuously by collateral
in cash, cash equivalents (such as money market instruments) or other liquid
securities held by the custodian and maintained
in an amount at least equal to the market value of the securities loaned. The
Fund may engage in securities lending to seek
to generate income. Upon return of the loaned securities, the Fund would be
required to return the related collateral to the borrower
and may be required to liquidate portfolio securities in order to do so. The
Fund may lend up to one-third of the value of its
total assets or such other amount as may be permitted by law.
As
with other extensions of credit, there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the
securities fails financially. To the extent that the portfolio securities
acquired with such collateral have decreased in value, it may result
in the Fund realizing a loss at a time when it would not otherwise do so. As
such, securities lending may introduce leverage into the
Fund. The Fund also may incur losses if the returns on securities that it
acquires with cash collateral are less than the applicable rebate
rates paid to borrowers and related administrative costs.
Borrowing
The
Fund is permitted to borrow for temporary purposes (such as to satisfy
redemption requests, to remain fully invested in anticipation
of expected cash inflows and to settle transactions). Any borrowings by the Fund
are subject to the requirements of the 1940
Act. Borrowings are also subject to the terms of any credit agreement between
the Fund and lender(s). Fund borrowings may be equal
to as much as 33 1/3% of the value of the Fund’s total assets (including such
borrowings) less the Fund’s liabilities (other than borrowings).
The Fund will not purchase additional investments while outstanding borrowings
exceed 5% of the value of its total assets.
Calvert | Additional
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Additional
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ETF
Structure Risks
Authorized
Participant Concentration Risk
Only
an authorized participant may engage in creation or redemption transactions
directly with the Fund. The Fund has a limited number
of intermediaries that act as authorized participants and none of these
authorized participants is or will be obligated to engage
in creation or redemption transactions. There can be no assurance that an active
trading market for the Fund’s shares will develop
or be maintained. To the extent that these intermediaries exit the business or
are unable to or choose not to proceed with creation
and/or redemption orders with respect to the Fund, such as during periods of
market stress, and no other authorized participant
creates or redeems, shares may trade at a discount to net asset value (“NAV”)
and possibly face trading halts and/or delisting.
Cash
Transactions Risk
Unlike
certain ETFs, the Fund may effect its creations and redemptions in cash or
partially in cash. As a result, an investment in the Fund
may be less tax-efficient than an investment in such ETFs. Other ETFs generally
are able to make in-kind redemptions and avoid
realizing gains in connection with transactions designed to raise cash to meet
redemption requests. To the extent the Fund effects
its redemptions in-kind, the in-kind redemption mechanism generally will not
lead to a tax event for the Fund or its non-redeeming
shareholders. If the Fund effects a portion of redemptions for cash, it may be
required to sell portfolio securities in order to
obtain the cash needed to distribute redemption proceeds, which also involves
transaction costs. If the Fund recognizes gain on these
sales, this generally will cause the Fund to recognize gain it might not
otherwise have recognized if it were to distribute portfolio securities
in-kind, or to recognize such gain sooner than would otherwise be required. The
Fund generally intends to distribute these gains
to shareholders to avoid being taxed on this gain at the Fund level and
otherwise comply with the special tax rules that apply to it.
This strategy may cause shareholders to be subject to tax on gains they would
not otherwise be subject to, or at an earlier date than,
if they had made an investment in a different ETF.
Trading
Risk
Shares
are listed for trading on NYSE Arca and are bought and sold in the secondary
market at market prices. The market prices of shares
are expected to fluctuate, in some cases materially, in response to changes in
the Fund’s NAV, the intra-day value of the Fund’s holdings,
and supply and demand for shares. The Adviser cannot predict whether shares will
trade above, below or at their NAV. Disruptions
to creations and redemptions, the existence of significant market volatility or
potential lack of an active trading market for
the shares (including through a trading halt), as well as other factors, may
result in the shares trading significantly above (at a premium)
or below (at a discount) to NAV or to the intraday value of the Fund’s holdings.
You may pay significantly more or receive significantly
less than the Fund’s NAV per share during periods when there is a significant
premium or discount. During such periods,
you may incur significant losses if you sell your shares.
Buying
or selling shares in the secondary market may require paying brokerage
commissions or other charges imposed by brokers as determined
by that broker. Brokerage commissions are often a fixed amount and may be a
significant proportional cost when seeking to
buy or sell relatively small amounts of shares. In addition, the market price of
shares, like the price of any exchange-traded security, includes
a “bid-ask spread” charged by the market makers or other participants that trade
the particular security. The spread of the Fund’s
shares varies over time based on the Fund’s trading volume and market liquidity
and may increase if the Fund’s trading volume,
the spread of the Fund’s underlying securities, or market liquidity
decrease.
Trading
in shares on NYSE Arca may be halted due to market conditions or for reasons
that, in the view of NYSE Arca, make trading
in shares inadvisable. In addition, trading in shares on NYSE Arca is subject to
trading halts caused by extraordinary market volatility
pursuant to NYSE Arca “circuit breaker” rules. If a trading halt or
unanticipated closing of the exchange occurs, a shareholder
may be unable to purchase or sell shares. There can be no assurance that the
requirements of NYSE Arca necessary to maintain
the listing of the Fund will continue to be met or will remain
unchanged.
Active
Management Risk
In
pursuing the Fund’s investment objective, the Adviser has considerable leeway in
deciding which investments to buy, hold or sell on
a day-to-day basis, and which trading strategies to use. For example, the
Adviser, in its discretion, may determine to use some permitted
trading strategies while not using others. The success or failure of such
decisions will affect the Fund’s performance. In addition,
it is expected that confidential or material non-public information regarding an
investment or potential investment opportunity
may become available to the Adviser. If such information becomes available, the
Adviser may be precluded (including by applicable
law or internal policies or procedures) from pursuing an investment or
disposition opportunity with respect to such investment
or investment opportunity and the Adviser may be restricted in its ability to
cause the Fund to buy or sell securities of an issuer
for substantial periods of time when the Fund otherwise could realize profit or
avoid loss. This may adversely affect the Fund’s flexibility
with respect to buying or selling securities and may impair the Fund’s
liquidity.
Banking
Industry
Investment
opportunities in investment grade securities may be concentrated in the banking
industry. Under normal conditions, the Fund
will invest more than 25% of its total assets in securities issued by issuers in
the banking industry. As a result, the Fund may have
a high concentration of investments in the banking industry. The banking
industry can be affected by global and local economic
Calvert | Additional
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Additional
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conditions,
such as the levels and liquidity of the global and local financial and asset
markets, the absolute and relative level and volatility
of interest rates and equity prices, investor sentiment, inflation, and the
availability and cost of credit. The enactment of new
legislation or regulations, as well as changes in interpretation and enforcement
of current laws, may affect the manner of operations
and profitability of the banking industry. Because the Fund’s investments will
be concentrated in the banking industry, factors
that have an adverse impact on this industry may have a disproportionate impact
on the Fund’s performance. Adverse developments
that affect financial institutions, the financial services sector or the banking
industry generally, or concerns or rumors about
any events of these kinds or other similar risks, may reduce liquidity in the
market generally or have other adverse effects on the economy,
the Fund, or issuers in which the Fund invests. In addition, the Fund and
issuers in which it invests may not be able to identify
all potential solvency or stress concerns with respect to a financial
institution or to transfer assets from one bank or financial institution
to another in a timely manner in the event such bank or financial institution
comes under stress or fails. The financial sector,
in particular depository institutions, such as banks, is particularly
susceptible to systemic risks and contagion which may adversely
affect the Fund’s investments in the financial services sector or the banking
industry.
Temporary
Investments
Under
adverse or unstable market conditions or abnormal circumstances or when the
Adviser believes that changes in market, economic,
political or other conditions warrant, the Fund may, in the discretion of the
Adviser, take temporary positions that are inconsistent
with the Fund’s principal investment strategies in attempting to respond to such
conditions or circumstances. For example,
the Fund may invest without limit in cash, cash equivalents or other
fixed-income instruments, derivatives, repurchase agreements
or securities of other investment companies, including money market funds, for
temporary purposes. If the Adviser incorrectly
predicts the effects of these changes, such temporary investments may adversely
affect the Fund’s performance and the Fund
may not achieve its investment objective.
Cybersecurity
Risk
With
the increased use of technologies such as the internet to conduct business, the
Fund, the Adviser, authorized participants, service
providers and the relevant listing exchange are susceptible to operational,
information security and related “cyber” risks both directly
and through the service providers. Similar types of cybersecurity risks
are also present for issuers of securities in which the Fund
invests, which could result in material adverse consequences for such issuers
and may cause the Fund’s investment in such issuers
to lose value. In general, cyber incidents can result from deliberate attacks or
unintentional events. Cyber incidents include, but
are not limited to, gaining unauthorized access to digital systems (e.g.,
through “hacking” or malicious software coding) for purposes
of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. Cyberattacks may also
be carried out in a manner that does not require gaining unauthorized access,
such as causing denial-of-service attacks on websites
(i.e., efforts to make network services unavailable to intended users).
Recently, geopolitical tensions may have increased the scale
and sophistication of deliberate attacks, particularly those from nation-states
or from entities with nation-state backing.
Cybersecurity
failures by, or breaches of, the systems of the Adviser, distributor and other
service providers (including, but not limited
to, index and benchmark providers, fund accountants, custodians, transfer agents
and administrators), exchanges, market participants,
market makers, authorized participants or the issuers of securities in which the
Fund invests have the ability to cause disruptions
and impact business operations, potentially resulting in: financial losses,
interference with the Fund’s ability to calculate its NAV,
disclosure of confidential trading information, impediments to trading,
submission of erroneous trades or erroneous creation
or redemption orders, the inability of the Fund or its service providers to
transact business, violations of applicable privacy and
other laws, regulatory fines, penalties, reputational damage, reimbursement or
other compensation costs, or additional compliance
costs. In addition, cyberattacks may render records of Fund assets and
transactions, shareholder ownership of Fund shares,
and other data integral to the functioning of the Fund inaccessible, inaccurate
or incomplete. Substantial costs may be incurred
by the Fund in order to resolve or prevent cyber incidents in the future. While
the Fund has established business continuity plans
in the event of, and risk management systems to prevent, such cyber incidents,
there are inherent limitations in such plans and systems,
including the possibility that certain risks have not been identified, that
prevention and remediation efforts will not be successful
or that cyberattacks will go undetected. Furthermore, the Fund cannot control
the cybersecurity plans and systems put in place
by service providers to the Fund, issuers in which the Fund invests, market
makers or authorized participants. The Fund and its shareholders
could be negatively impacted as a result.
Regulatory
and Legal Risk
U.S.
and non-U.S. governmental agencies and other regulators regularly implement
additional regulations and legislators pass new laws
that affect the investments held by the Fund, the strategies used by the Fund or
the level of regulation or taxation applying to the
Fund (such as regulations related to investments in derivatives and other
transactions). These regulations and laws impact the investment
strategies, performance, costs and operations of the Fund or taxation of
shareholders.
The
SEC has recently proposed amendments to Rule 22e-4 of the 1940 Act that, if
adopted, would result in changes to the Fund’s liquidity
classification framework and could potentially increase the percentage of the
Fund’s investments classified as illiquid. In addition,
the Fund’s operations and investment strategies may be adversely impacted if the
proposed amendments are adopted.
Calvert | About
Responsible Investing
About
Responsible Investing
Investment
Selection Process
Calvert
seeks to invest in issuers that manage ESG risk exposures adequately and that
are not exposed to excessive ESG risk through their
principal business activities. Issuers are analyzed using The Calvert Principles
for Responsible Investment (included as Appendix A
to this Prospectus), a framework for considering ESG factors. Each issuer is
evaluated relative to an appropriate peer group based on
financially material ESG factors as determined by Calvert. Calvert’s evaluation
of a particular security’s responsible investing characteristics
generally involves both quantitative and qualitative analysis. In assessing
investments, Calvert generally focuses on the ESG
factors relevant to the issuer’s operations, and an issuer may be acceptable for
investment based primarily on such assessment. Securities
may be deemed suitable for investment even if the issuer does not operate in
accordance with all elements of the Fund’s responsible
investing criteria. The Fund may also invest in issuers that Calvert believes
are likely to operate in accordance with the Principles
pending Calvert’s engagement activity with such issuer. In assessing
issuers for which quantitative data is limited, subjective
judgments may serve as the primary basis for Calvert’s evaluation. The
responsible investment criteria of the Fund may be changed
by the Board without shareholder approval.
The
Fund may invest in a fixed or floating-rate income security before Calvert has
completed its evaluation of the security’s responsible
investment characteristics if, in the opinion of the portfolio manager, the
timing of the purchase is appropriate given market
conditions. Factors that a portfolio manager may consider in making such an
investment decision include, but are not limited to,
(i) prevailing market prices, (ii) liquidity, (iii) bid-ask spreads, (iv) market
color, and (v) availability. Following any such investment
in a security, Calvert will evaluate the issuer to determine if it operates in a
manner that is consistent with the Fund’s responsible
investment criteria. A security will also be sold (in accordance with the
Adviser’s guidelines and at a time and in a manner that
is determined to be in the best interests of shareholders) if the Adviser
determines that the issuer does not operate in a manner consistent
with the Fund’s responsible investment criteria. If a security is sold prior
to Calvert’s responsible investment determination and
is no longer held by the Fund, Calvert may not complete its evaluation of such
security. As described above, or in the SAI, the Fund
may invest in cash, money market instruments and ETFs. Such investments will
generally not be subject to responsible investment
analysis and will not be required to be consistent with the responsible
investment criteria otherwise applicable to investments
made by the Fund. In addition, ETFs in which a Fund may invest may hold
securities of issuers that do not operate in accordance
with the Fund’s responsible investment criteria.
Shareholder
Advocacy and Corporate Responsibility
The
Adviser has engaged Calvert to vote proxies consistent with Calvert’s Proxy
Voting Policies and Procedures (“Proxy Policy”) and Global
Proxy Voting Guidelines. The Adviser has also engaged Calvert to seek to
actively engage with issuers. Calvert uses strategic engagement
and shareholder advocacy to encourage positive change in companies. Calvert’s
activities may include, but are not limited
to:
Direct
Dialogue with Company Management.
Calvert, or its agent, may initiate dialogue with management through phone
calls, letters and
in-person meetings. Through its interaction, Calvert seeks to learn about
management’s successes and challenges and to press for improvement
on issues of concern.
Proxy
Voting.
As a shareholder of the companies in its portfolio, the
Fund typically has an opportunity each year to express its views on
issues of corporate governance and sustainability at annual stockholder
meetings. Calvert votes proxies consistent with the Proxy Policy
attached to the SAI.
Shareholder
Resolutions.
Calvert may propose that companies submit resolutions to their shareholders on a
variety of ESG issues. Calvert
believes that submitting shareholder resolutions may help establish dialogue
with management and encourage companies to take
action.
Calvert | Fund
Management
Adviser
Morgan
Stanley Investment Management Inc., with principal offices at 1585 Broadway, New
York, NY 10036, conducts a worldwide
portfolio management business and provides a broad range of portfolio management
services to customers in the United States
and abroad. Morgan Stanley (NYSE: “MS”) is the parent of the Adviser. Morgan
Stanley is a preeminent global financial services
firm engaged in securities trading and brokerage activities, as well as
providing investment banking, research and analysis, financing
and financial advisory services. As of December 31, 2023, the Adviser, together
with its affiliated asset management companies,
had approximately $1.5 trillion in assets under management or
supervision.
A
discussion regarding the Board of Trustees’ approval of the Management Agreement
is available in the Fund’s semi-annual report to
shareholders for the period ending March 31, 2023.
Management
Fees
The
Adviser receives a fee for management services equal to 0.24% of the Fund’s
average daily net assets.
Under
the Management Agreement, the Adviser will pay substantially all the expenses of
the Fund (including expenses of the Trust relating
to the Fund), except for the distribution fees, if any, brokerage expenses,
acquired fund fees and expenses, taxes, interest, litigation
expenses, and other extraordinary expenses, including the costs of proxies, not
incurred in the ordinary course of the Fund’s business.
Portfolio
Management
The
Fund is managed by Brian S. Ellis, CFA, Eric Jesionowski, Brandon Matusi,
CFA, Kinzer Jennings, CFA and Alec Schaefer, who
are jointly and primarily responsible for the day-to-day management of the
Fund.
Mr.
Ellis is a Managing Director of Morgan Stanley Investment Management Inc.,
manages other funds and has been employed by the
Morgan Stanley organization for more than five
years. Mr. Jesionowski is an Executive Director of Morgan Stanley
Investment Management
Inc., manages other funds and has been employed by the Morgan Stanley
organization for more than five years. Mr. Matsui
is also an Executive Director of the Adviser. Prior to joining the Adviser in
2023, Mr. Matsui served as the Head of Fixed Income
for DWS’ Systematic Investment Solutions group since 2016. Mr. Schaefer is a
Vice President of the Adviser, manages other funds
and has been employed by the Morgan Stanley organization for more than five
years. Mr. Jennings is also a Vice President of the
Adviser, managers other funds and has been employed by the Morgan Stanley
organization since 2020. Prior to joining the Adviser
in 2020, Mr. Jennings served as an Associate and Analyst for Goldman Sachs Asset
Management since 2015.
The
Fund’s SAI provides additional information about the portfolio managers’
compensation structure, other accounts managed by the
portfolio managers and the portfolio managers’ ownership of securities in the
Fund.
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Distribution
of Fund Shares
The
Distributor is the exclusive distributor of Creation Units of the Fund. The
Distributor or its agent distributes Creation Units for the
Fund on an agency basis. The Distributor does not maintain a secondary market in
shares of the Fund. The Distributor has no role
in determining the investment policies of the Fund or the securities that are
purchased or sold by the Fund. The Distributor’s principal
address is 3 Canal Plaza Suite 100, Portland, ME 04101.
The
Board of Trustees of the Trust has adopted a distribution and service plan
(“Plan”) pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, the Fund is authorized to pay distribution fees in connection with the
sale and distribution of its shares and pay service
fees in connection with the provision of ongoing services to shareholders of the
Fund and the maintenance of shareholder accounts
in an amount up to 0.25% of its average daily net assets each year.
No
Rule 12b-1 fees are currently paid by the Fund, and there are no current plans
to impose these fees. However, in the event Rule 12b-1
fees are charged in the future, because these fees are paid out of the Fund’s
assets on an ongoing basis, these fees will increase the
cost of your investment in the Fund. By purchasing shares subject to
distribution fees and service fees, you may pay more over time
than you would by purchasing shares with other types of sales charge
arrangements. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the rules
of FINRA. The net income attributable to shares
will be reduced by the amount of distribution fees and service fees and other
expenses of the Fund.
About
Net Asset Value
The
Fund’s NAV per share is determined by dividing the total of the value of the
Fund’s investments and other assets, less any liabilities
attributable to the Fund, by the total number of outstanding shares of the Fund.
In making this calculation, the Fund generally
values its portfolio securities and other assets at market price.
When
no market quotations are readily available for a security or other asset,
including circumstances under which the Adviser determines
that a market quotation is not accurate, fair value for the security or other
asset will be determined in good faith using methods
approved by the Board of Trustees. The Adviser, consistent with its procedures
and applicable regulatory guidance, may (but
need not) determine to make an adjustment to the previous closing prices of
either domestic or foreign securities in light of significant
events, to reflect what it believes to be the fair value of the securities at
the time of determining the Fund’s NAV. In these cases,
the Fund’s NAV will reflect certain portfolio securities’ fair value rather than
their market price. In addition, the securities held by
the Fund may be traded in markets that close at a different time than the
exchange on which the Fund’s shares are listed. Accordingly,
during the time when the Fund’s listing exchange is open but after the
applicable market closes, bid-ask spreads may widen
and Fund shares may trade at a premium or discount to NAV. To the extent the
Fund invests in open-end management companies
(other than ETFs) that are registered under the 1940 Act, the Fund’s NAV is
calculated based in relevant part upon the NAV
of such funds. The prospectuses for such funds explain the circumstances under
which they will use fair value pricing and its effects.
Fair
value pricing involves subjective judgments and it is possible that the fair
value determined for a security or other asset is materially
different than the value that could be realized upon the sale of that security
or other asset. With respect to securities that are
primarily listed on foreign exchanges, the values of the Fund’s portfolio
securities may change on days when you will not be able to
purchase or sell your shares. The NAV of the Fund is based on the value of the
Fund’s portfolio securities or other assets.
The
Fund relies on various sources to calculate its NAV. The ability of the Fund’s
provider of administrative services to calculate the NAV
per share of the Fund is subject to operational risks associated with processing
or human errors, systems or technology failures, cyber
attacks and errors caused by third party service providers, data sources, or
trading counterparties. Such failures may result in delays
in the calculation of the Fund’s NAV and/or the inability to calculate NAV over
extended time periods. The Fund may be unable
to recover any losses associated with such failures. In addition, if the third
party service providers and/or data sources upon which
the Fund directly or indirectly relies to calculate its NAV or price individual
securities are unavailable or otherwise unable to calculate
the NAV correctly, it may be necessary for alternative procedures to be utilized
to price the securities at the time of determining
the Fund’s NAV.
The
Fund’s NAV per share is subject to various investment and other risks. Please
refer to the “Additional Information About Fund Investment
Strategies and Related Risks” and “Investment Strategies and Techniques”
sections of the Prospectus and SAI, respectively,
for more information regarding risks associated with an investment in the
Fund.
Book
Entry
The
Depository Trust Company (“DTC”) serves as securities depository for the shares.
The shares may be held only in book-entry form;
stock certificates will not be issued. DTC, or its nominee, is the record or
registered owner of all outstanding shares. Beneficial ownership
of shares will be shown on the records of DTC or its participants (described
below). Beneficial owners of shares are not entitled
to have shares registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form
and are not considered the registered holder thereof. Accordingly, to exercise
any rights of a holder of shares, each beneficial owner
must rely on the procedures of: (i) DTC; (ii) “DTC Participants,” i.e.,
securities brokers and dealers, banks, trust companies,
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clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own DTC; and (iii) “Indirect Participants,”
i.e., brokers, dealers, banks and trust companies that clear through or maintain
a custodial relationship with a DTC Participant,
either directly or indirectly, through which such beneficial owner holds its
interests. The Trust understands that under existing
industry practice, in the event the Trust requests any action of holders of
shares, or a beneficial owner desires to take any action
that DTC, as the record owner of all outstanding shares, is entitled to take,
DTC would authorize the DTC Participants to take
such action and that the DTC Participants would authorize the Indirect
Participants and beneficial owners acting through such DTC
Participants to take such action and would otherwise act upon the instructions
of beneficial owners owning through them. As described
above, the Trust recognizes DTC or its nominee as the owner of all shares for
all purposes.
Buying
and Selling Shares
Shares
of the Fund may be acquired or redeemed directly from the Fund at NAV only in
Creation Units or multiples thereof, as discussed
in the Creations and Redemptions section of the Prospectus. Only an Authorized
Participant (as defined in the Creations and
Redemptions section below) may engage in creation or redemption transactions
directly with the Fund. Once created, shares of the
Fund generally trade in the secondary market in amounts less than a Creation
Unit.
Shares
of the Fund are listed for trading on a national securities exchange during the
trading day. Shares can be bought and sold throughout
the trading day at market price like shares of other publicly traded companies.
However, there can be no guarantee that an
active trading market will develop or be maintained, or that the Fund shares
listing will continue or remain unchanged. The Trust does
not impose any minimum investment for shares of the Fund purchased on an
exchange. Buying or selling the Fund’s shares involves
certain costs that apply to all securities transactions. When buying or selling
shares of the Fund through a financial intermediary,
you may incur a brokerage commission or other charges determined by your
financial intermediary. Due to these brokerage
costs, if any, frequent trading may detract significantly from investment
returns. In addition, you may also incur the cost of the
spread (the difference between the bid price and the ask price). The commission
is frequently a fixed amount and may be a significant
cost for investors seeking to buy or sell small amounts of shares. The spread
varies over time for shares of the Fund based on
its trading volume and market liquidity, and is generally less if the Fund has
more trading volume and market liquidity and more if
the Fund has less trading volume and market liquidity.
The
Fund’s primary listing exchange is NYSE Arca. NYSE Arca is open for trading
Monday through Friday and is closed on the following
holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Juneteenth National
Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
A
“business day” with respect to the Fund is each day the New York Stock Exchange,
NYSE Arca, and the Trust are open and includes
any day that the Fund is required to be open under Section 22(e) of the 1940
Act. Orders from authorized participants to create
or redeem Creation Units will only be accepted on a business day. On days when
NYSE Arca closes earlier than normal, the Fund
may require orders to create or redeem Creation Units to be placed earlier in
the day. See the SAI for more information.
The
Trust’s Board of Trustees has not adopted a policy of monitoring for frequent
purchases and redemptions of Fund shares (“frequent
trading”) that appear to attempt to take advantage of potential arbitrage
opportunities presented by a lag between a change in
the value of the Fund’s portfolio securities after the close of the primary
markets for the Fund’s portfolio securities and the reflection
of that change in the Fund’s NAV (“market timing”). The Trust believes this is
appropriate because ETFs, such as the Fund,
are intended to be attractive to arbitrageurs, as trading activity is critical
to ensuring that the market price of Fund shares remains
at or close to NAV. Since the Fund issues and redeems Creation Units at NAV plus
applicable transaction fees, and the Fund’s
shares may be purchased and sold on NYSE Arca at prevailing market prices, the
risks of frequent trading are limited.
Section
12(d)(1) of the 1940 Act generally restricts investments by investment
companies, including foreign and unregistered investment
companies, in the securities of other investment companies. For example, a
registered investment company (the “Acquired
Fund”), such as the Fund, may not knowingly sell or otherwise dispose of any
security issued by the Acquired Fund to any investment
company (the “Acquiring Fund”) or any company or companies controlled by the
Acquiring Fund if, immediately after such
sale or disposition: (i) more than 3% of the total outstanding voting stock of
the Acquired Fund is owned by the Acquiring Fund
and any company or companies controlled by the Acquiring Fund, or (ii) more than
10% of the total outstanding voting stock of
the Acquired Fund is owned by the Acquiring Fund and other investment companies
and companies controlled by them. However,
registered investment companies are permitted to invest in the Fund beyond the
limits set forth in Section 12(d)(1), subject
to certain terms and conditions set forth in SEC rules. In order for a
registered investment company to invest in shares of the Fund
beyond the limitations of Section 12(d)(1) in reliance on Rule 12d1-4 under the
1940 Act, the registered investment company must,
among other things, enter into an agreement with the Trust. Foreign investment
companies are permitted to invest in the Fund
only up to the limits set forth in Section 12(d)(1), subject to any applicable
SEC Staff no-action relief.
The
Fund and the Distributor will have the sole right to accept orders to purchase
shares and reserve the right to reject any purchase order
in whole or in part.
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Creations
and Redemptions
Prior
to trading in the secondary market, shares of the Fund are “created” at NAV by
market makers, large investors and institutions only
in block-size Creation Units or multiples thereof. Each “creator” or authorized
participant (an “Authorized Participant”) enters into
an authorized participant agreement with the Fund’s Distributor. An Authorized
Participant is a member or participant of a clearing
agency registered with the SEC, which has a written agreement with the Fund or
one of its service providers that allows such member
or participant to place orders for the purchase and redemption of Creation
Units.
A
creation transaction, which is subject to acceptance by JPMorgan Chase Bank
N.A., as the Trust’s transfer agent, generally takes place
when an Authorized Participant deposits into the Fund a designated portfolio of
securities (including any portion of such securities
for which cash may be substituted) and a specified amount of cash in exchange
for a specified number of Creation Units.
Similarly,
shares can be redeemed only in Creation Units, generally for a designated
portfolio of securities (including any portion of such
securities for which cash may be substituted) held by the Fund and a specified
amount of cash. Except when aggregated in Creation
Units, shares are not redeemable by the Fund.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received
in an acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units directly with the
Fund.
In
the event of a system failure or other interruption, including disruptions at
market makers or authorized participants, orders to purchase
or redeem Creation Units either may not be executed according to the Fund’s
instructions or may not be executed at all, or the
Fund may not be able to place or change orders.
In
connection with certain cash creations, the Adviser may provide the creating
Authorized Participants with information regarding securities
that the Fund would be willing to purchase with the proceeds of the cash
creation, which may not be the current holdings of
the Fund. In certain cases, the Fund may purchase such securities from an
Authorized Participant that has submitted a creation order.
Regardless of whether the Fund purchases securities with the proceeds of a cash
creation order from the creating Authorized Participant,
the Authorized Participant may be assessed a variable charge to compensate the
Fund for the costs associated with purchasing
the applicable securities, as described in the SAI. For more information, see
the SAI.
To
the extent the Fund engages in in-kind transactions, the Fund intends to comply
with the U.S. federal securities laws in accepting securities
for deposit and satisfying redemptions with redemption securities by, among
other means, assuring that any securities accepted
for deposit and any securities used to satisfy redemption requests will be sold
in transactions that would be exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”). Further, an
Authorized Participant that is not a “qualified
institutional buyer,” as such term is defined under Rule 144A of the Securities
Act, will not be able to receive restricted securities
eligible for resale under Rule 144A.
The
in-kind arrangements are intended to protect ongoing shareholders from adverse
effects on the Fund’s portfolio that could arise from
frequent cash creation and redemption transactions and generally will not lead
to a tax event for the Fund or its ongoing shareholders.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National
Securities Clearing Corporation or a DTC Participant and has executed an
agreement with the Distributor with respect to creations
and redemptions of Creation Unit aggregations. Information about the procedures
regarding creation and redemption of Creation
Units (including the cut-off times for receipt of creation and redemption
orders) and the applicable transaction fees is included
in the Fund’s SAI.
Portfolio
Holdings
A
description of the Trust’s policies and procedures with respect to the
disclosure of the
Fund’s portfolio securities is available in the Trust’s
SAI.
Inactive
Accounts and Risk of Escheatment
In
accordance with state “unclaimed property” laws, your Fund shares may legally be
considered abandoned and required to be transferred
to the relevant state (also known as “escheatment”) under various circumstances.
These circumstances, which vary by state,
can include inactivity (e.g., no owner-initiated contact for a certain period),
returned mail (e.g., when mail sent to a shareholder is
returned by the post office as undeliverable), uncashed checks or a combination
of these. An incorrect address may cause a shareholder’s
account statements and other mailings to be returned to the Fund or your
Financial Intermediary. Since states’ statutory
requirements regarding inactivity differ, it is important to regularly contact
your Financial Intermediary or the Fund’s transfer
agent. The process described above, and the application of state escheatment
laws, may vary by state and/or depending on how
shareholders hold their shares in the Fund.
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It
is your responsibility to ensure that you maintain a valid mailing address for
your account, keep your account active by contacting your
Financial Intermediary or the Fund’s transfer agent (e.g., by mail or
telephone), and promptly cash all checks for dividends, capital
gains and redemptions. Neither the Fund nor the Adviser will be liable to
shareholders or their representatives for good faith compliance
with escheatment laws.
For
more information, please contact us at 800-836-2414.
Dividends
and Distributions
General
Policies
Dividends
from net investment income, if any, generally are declared and paid monthly by
the Fund. Distributions of net realized securities
gains, if any, generally are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for the
Fund. The Trust reserves the right to declare special distributions if, in its
reasonable discretion, such action is necessary or advisable
to preserve its status as a regulated investment company or to avoid imposition
of income or excise taxes on undistributed income
or realized gains. Dividends and other distributions on shares of the Fund are
distributed on a pro rata basis to beneficial owners
of such shares. Dividend payments are made through DTC participants and indirect
participants to beneficial owners then of record
with proceeds received from the Fund.
Dividend
Reinvestment Service
No
dividend reinvestment service is provided by the Trust. Broker-dealers may make
available the DTC book-entry dividend reinvestment
service for use by beneficial owners of the Fund for reinvestment of their
dividend distributions. Beneficial owners should
contact their broker to determine the availability and costs of the service and
the details of participation therein. Brokers may require
beneficial owners to adhere to specific procedures and timetables. If this
service is available and used, dividend distributions of both
income and realized gains will be automatically reinvested in additional whole
shares of the Fund purchased in the secondary market.
Taxes
As
with any investment, you should consider how your Fund investment will be taxed.
The tax information in this Prospectus is provided
as general information. You should consult your own tax professional about the
tax consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware
of the possible tax consequences when the Fund makes distributions and when you
sell shares.
Taxation
of Distributions.
Your distributions normally are subject to federal and state income tax when
they are paid, whether you take
them in cash or reinvest them in Fund shares. A distribution also may be subject
to local income tax. Any income dividend distributions
and any short-term capital gain distributions are taxable to you as ordinary
income. Any long-term capital gain distributions
are taxable as long-term capital gains, no matter how long you have owned shares
in the Fund. It is not anticipated that any
portion of the distributions by the Fund would qualify for a lower tax rate as
qualified dividend income. Further, such distributions
are not anticipated to be eligible for a dividends-received deduction for
corporate shareholders.
If
you buy shares of the Fund before a distribution, you may be subject to tax on
the entire amount of the taxable distribution you receive.
Distributions are taxable to you even if they are paid from income or gain
earned by the Fund before your investment (and thus
were included in the price you paid for your Fund shares).
Investment
income received by the Fund from sources within foreign countries may be subject
to foreign income, withholding, and other
taxes. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes.
You
will be sent a statement IRS Form 1099-DIV) by February of each year showing the
taxable distributions paid to you in the previous
year. The statement provides information on your dividends and any capital gains
for tax purposes.
Taxation
of Sales.
Your sale of Fund shares normally is subject to federal and state income tax and
may result in a taxable gain or loss to
you. A sale also may be subject to local income tax. When you sell your shares,
you will generally recognize a capital gain or loss in an
amount equal to the difference between your adjusted tax basis in the shares and
the amount received. Generally, this capital gain or
loss is long-term or short-term depending on whether your holding period exceeds
one year, except that any loss realized on shares held
for six months or less will be treated as a long-term capital loss to the extent
of any long-term capital gain dividends that were received
on the shares. Additionally, any loss realized on a sale of shares of the Fund
may be disallowed under “wash sale” rules to the extent
the shares disposed of are replaced with other shares of the Fund within a
period of 61 days beginning 30 days before and ending
30 days after the date of disposition, such as pursuant to a dividend
reinvestment in Fund shares. If disallowed, the loss will be
reflected in an adjustment to the basis of the shares acquired.
Creations
and Redemptions.
A person who exchanges securities for Creation Units generally will recognize a
gain or loss. The gain or loss
will be equal to the difference between the market value of the Creation Units
at the time of exchange and the sum of the
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exchanger’s
aggregate basis in the securities surrendered and the amount of any cash paid
for such Creation Units. A person who exchanges
Creation Units for securities will generally recognize a gain or loss equal to
the difference between the exchanger’s basis in the
Creation Units and the sum of the aggregate market value of the securities
received. The IRS, however, may assert that a loss realized
upon an exchange of primarily securities for Creation Units cannot be deducted
currently under the rules governing “wash sales,”
or on the basis that there has been no significant change in economic position.
Persons exchanging securities for Creation Units
or redeeming Creation Units should consult their own tax adviser with respect to
whether wash sale rules apply and when a loss might
be deductible and the tax treatment of any creation or redemption
transaction.
Under
current U.S. federal income tax laws, any capital gain or loss realized upon a
redemption (or creation) of Creation Units is generally
treated as long-term capital gain or loss if the Fund shares (or securities
surrendered) have been held for more than one year and
as a short-term capital gain or loss if the Fund shares (or securities
surrendered) have been held for one year or less.
Other
Information.
An additional 3.8% Medicare tax is imposed on certain net investment income
(including ordinary dividends and capital
gain distributions received from the Fund and net gains from redemptions or
other taxable dispositions of Fund shares) of U.S.
individuals, estates and trusts to the extent that such person’s “modified
adjusted gross income” (in the case of an individual) or ”adjusted
gross income” (in the case of an estate or trust) exceeds certain threshold
amounts.
You
may be subject to backup withholding at a rate of 24% with respect to taxable
distributions if you do not provide your correct taxpayer
identification number, or certify that it is correct, or if you have been
notified by the IRS that you are subject to backup withholding.
Shareholders
who are not citizens or residents of the United States and certain foreign
entities will generally be subject to withholding of
U.S. tax of 30% on distributions made by the Fund of investment income and
short-term capital gains.
Withholding
of U.S. tax is required (at a 30% rate) on payments of taxable dividends made to
certain non-U.S. entities that fail to comply
(or be deemed compliant) with extensive reporting and withholding requirements
designed to inform the U.S. Department of
the Treasury of U.S.-owned foreign investment accounts. Shareholders may be
requested to provide additional information to the Fund
to enable the Fund to determine whether withholding is required.
Reporting
to you and the IRS is required annually on Form 1099-B with respect to not only
the gross proceeds of Fund shares you sell
or redeem but also their cost basis. Shareholders should contact their
intermediaries with respect to reporting of cost basis and available
elections with respect to their accounts. You should carefully review the cost
basis information provided by the applicable intermediary
and make any additional basis, holding period or other adjustments that are
required when reporting these amounts on your
federal income tax returns.
Because
each investor’s tax circumstances are unique and the tax laws may change, you
should consult your tax advisor about your investment.
Potential
Conflicts of Interest
As
a diversified global financial services firm, Morgan Stanley, the parent company
of the Adviser, engages in a broad spectrum of activities,
including financial advisory services, investment management activities,
lending, commercial banking, sponsoring and managing
private investment funds, engaging in broker-dealer transactions and principal
securities, commodities and foreign exchange
transactions, research publication and other activities. In the ordinary course
of its business, Morgan Stanley is a full-service investment
banking and financial services firm and therefore engages in activities where
Morgan Stanley’s interests or the interests of its
clients may conflict with the interests of the Fund. Morgan Stanley advises
clients and sponsors, manages or advises other investment
funds and investment programs, accounts and businesses (collectively, together
with any new or successor funds, programs,
accounts or businesses, the ‘‘Affiliated Investment Accounts’’) with a wide
variety of investment objectives that in some instances
may overlap or conflict with the Fund’s investment objectives and present
conflicts of interest. In addition, Morgan Stanley may
also from time to time create new or successor Affiliated Investment Accounts
that may compete with the Fund and present similar
conflicts of interest. The discussion below enumerates certain actual, apparent
and potential conflicts of interest. There is no assurance
that conflicts of interest will be resolved in favor of Fund shareholders and,
in fact, they may not be. Conflicts of interest not
described below may also exist.
For
more information about conflicts of interest, see the section entitled
“Potential Conflicts of Interest” in the SAI.
Material
Nonpublic Information.
It is expected that confidential or material nonpublic information regarding an
investment or potential
investment opportunity may become available to the Adviser. If such information
becomes available, the Adviser may be precluded
(including by applicable law or internal policies or procedures) from pursuing
an investment or disposition opportunity with
respect to such investment or investment opportunity. Morgan Stanley has
established certain information barriers and other policies
to address the sharing of information between different businesses within Morgan
Stanley. In limited circumstances, however,
including for purposes of managing business and reputational risk, and subject
to policies and procedures and any
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applicable
regulations, personnel, including personnel of the Adviser, on one side of an
information barrier may have access to information
and personnel on the other side of the information barrier through “wall
crossings.” The Adviser faces conflicts of interest
in determining whether to engage in such wall crossings. Information obtained in
connection with such wall crossings may limit
or restrict the ability of the Adviser to engage in or otherwise effect
transactions on behalf of the Fund (including purchasing or selling
securities that the Adviser may otherwise have purchased or sold for the Fund in
the absence of a wall crossing).
Investments
by Morgan Stanley and its Affiliated Investment Accounts.
In serving in multiple capacities to Affiliated Investment Accounts,
Morgan Stanley, including the Adviser and the Investment team, may have
obligations to other clients or investors in Affiliated
Investment Accounts, the fulfillment of which may not be in the best interests
of the Fund or its shareholders. The Fund’s investment
objectives may overlap with the investment objectives of certain Affiliated
Investment Accounts. As a result, the members of
an Investment team may face conflicts in the allocation of investment
opportunities among the Fund and other investment funds, programs,
accounts and businesses advised by or affiliated with the Adviser. Certain
Affiliated Investment Accounts may provide for higher
management or incentive fees or greater expense reimbursements or overhead
allocations, all of which may contribute to this conflict
of interest and create an incentive for the Adviser to favor such other
accounts. To seek to reduce potential conflicts of interest
and to attempt to allocate such investment opportunities in a fair and equitable
manner, the Adviser has implemented allocation
policies and procedures. These policies and procedures are intended to give all
clients of the Adviser, including the Fund, fair
access to investment opportunities consistent with the requirements of
organizational documents, investment strategies, applicable
laws and regulations, and the fiduciary duties of the Adviser.
Payments
to Broker-Dealers and Other Financial Intermediaries.
The Adviser and/or the Distributor may pay compensation, out of their
own funds and not as an expense of the Fund, to certain Financial Intermediaries
(which may include affiliates of the Adviser and
Distributor), including recordkeepers and administrators of various deferred
compensation plans, in connection with the sale, distribution,
marketing and retention of shares of the Fund and/or shareholder servicing. The
prospect of receiving, or the receipt of, additional
compensation, as described above, by Financial Intermediaries may provide such
Financial Intermediaries and their financial
advisors and other salespersons with an incentive to favor sales of shares of
the Fund over other investment options with respect
to which these Financial Intermediaries do not receive additional compensation
(or receives lower levels of additional compensation).
These payment arrangements, however, will not change the price that an investor
pays for shares of the Fund or the amount
that the Fund receives to invest on behalf of an investor. Investors may wish to
take such payment arrangements into account when
considering and evaluating any recommendations relating to Fund shares and
should review carefully any disclosures provided by
Financial Intermediaries as to their compensation. In addition, in certain
circumstances, the Adviser restricts, limits or reduces the amount
of the Fund’s investment, or restricts the type of governance or voting rights
it acquires or exercises, where the Fund (potentially
together with Morgan Stanley) exceeds a certain ownership interest, or possesses
certain degrees of voting or control or has
other interests.
Morgan
Stanley Trading and Principal Investing Activities.
Notwithstanding anything to the contrary herein, Morgan Stanley will
generally
conduct its sales and trading businesses, publish research and analysis, and
render investment advice without regard for the Fund’s
holdings, although these activities could have an adverse impact on the value of
one or more of the Fund’s investments, or could
cause Morgan Stanley to have an interest in one or more portfolio investments
that is different from, and potentially adverse to,
that of the Fund.
Morgan
Stanley’s Investment Banking and Other Commercial Activities.
Morgan Stanley advises clients on a variety of mergers, acquisitions,
restructuring, bankruptcy and financing transactions. Morgan Stanley may act as
an advisor to clients, including other investment
funds that may compete with the Fund and with respect to investments that the
Fund may hold. Morgan Stanley may give
advice and take action with respect to any of its clients or proprietary
accounts that may differ from the advice given, or may involve
an action of a different timing or nature than the action taken, by the Fund.
Morgan Stanley may give advice and provide recommendations
to persons competing with the Fund and/or any of the Fund’s investments that are
contrary to the Fund’s best interests
and/or the best interests of any of its investments. Morgan Stanley’s activities
on behalf of its clients (such as engagements as an
underwriter or placement agent) may restrict or otherwise limit investment
opportunities that may otherwise be available to the Fund.
Morgan
Stanley may be engaged to act as a financial advisor to a company in connection
with the sale of such company, or subsidiaries
or divisions thereof, may represent potential buyers of businesses through its
mergers and acquisition activities and may provide
lending and other related financing services in connection with such
transactions. Morgan Stanley’s compensation for such activities
is usually based upon realized consideration and is usually contingent, in
substantial part, upon the closing of the transaction.
Under these circumstances, the Fund may be precluded from participating in a
transaction with or relating to the company
being sold or participating in any financing activity related to a merger or an
acquisition.
Calvert | Financial
Highlights
The
financial highlights table that follows is intended to help you understand the
financial performance of the shares of the Fund since
inception. Certain information reflects financial results for a single Fund
share. The total returns in the tables represent the
rate that an investor would have earned (or lost) on an investment in the
Fund
(assuming reinvestment of all dividends and distributions).
The
information below has been derived from the financial statements audited
by Ernst & Young LLP, the Fund’s independent
registered
public accounting firm. Ernst & Young LLP’s report, along with the
Fund’s
financial statements, are incorporated by reference
into the Fund’s SAI.
The Annual Report to Shareholders (which includes the Fund’s
financial statements) and SAI are available
at no cost from the Trust at the toll-free number noted on the back cover to
this Prospectus.
Calvert | Financial
Highlights
Calvert
Ultra-Short Investment Grade ETF
|
| |
|
|
|
Selected
Per Share Data and Ratios |
Period
from January 30, 2023(1) to
September 30, 2023 |
Net
Asset Value, Beginning of Period |
$ |
|
Income
(Loss) from Investment Operations: |
|
|
Net
Investment Income(2)
|
|
|
Net
Realized and Unrealized Loss |
|
|
Total
from Investment Operations |
|
|
Distributions
from and/or in Excess of: |
|
|
Net
Investment Income |
|
|
Net
Asset Value, End of Period |
$ |
|
Total
Return(3)
|
|
|
Ratios
to Average Net Assets and Supplemental Data: |
|
|
Net
Assets, End of Period (Thousands) |
$ |
|
Ratio
of Expenses |
|
|
Ratio
of Net Investment Income |
|
|
Ratio
of Rebate from Morgan Stanley Affiliates |
|
|
Portfolio
Turnover Rate |
|
|
| |
(1) |
Commencement
of Operations. |
(2) |
Per
share amount is based on average shares outstanding. |
(3) |
Calculated
based on the net asset value as of the last business day of the
period. |
(4) |
Not
annualized. |
(5) |
Annualized. |
(6) |
The
Ratio of Expenses and Ratio of Net Investment Income reflect the rebate of
certain Fund expenses in connection with the investments in Morgan Stanley
affiliates
during the period. The effect of the rebate on the ratios is disclosed in
the above table as “Ratio of Rebate from Morgan Stanley
Affiliates.” |
(7) |
Amount
is less than 0.005%. |
Calvert | Premium/Discount
Information
Premium/Discount
Information
Information
regarding how often the closing trading price of the shares of the
Fund was above (i.e., at a premium) or below (i.e., at a discount)
the NAV of the shares of the Fund for the most recently completed calendar year
and the most recently completed calendar quarter(s)
since that year (or the life of the Fund, if shorter) can be found at
www.calvert.com.
Calvert |
Continuous
Offering Information
Continuous
Offering Information
The
method by which Creation Units are created and traded may raise certain issues
under applicable securities laws. Because new Creation
Units are issued and sold by the Trust on an ongoing basis, a “distribution,” as
such term is used in the Securities Act may occur
at any point. Broker dealers and other persons are cautioned that some
activities on their part may, depending on the circumstances,
result in their being deemed participants in a distribution in a manner which
could render them statutory underwriters
and subject them to the prospectus delivery and liability provisions of the
Securities Act.
For
example, a broker dealer firm or its client may be deemed a statutory
underwriter if it takes Creation Units after placing an order with
the Distributor, breaks them down into constituent shares, and sells such shares
directly to customers, or if it chooses to couple the
creation of a supply of new shares with an active selling effort involving
solicitation of secondary market demand for shares. A determination
of whether one is an underwriter for purposes of the Securities Act must take
into account all the facts and circumstances
pertaining to the activities of the broker dealer or its client in the
particular case, and the examples mentioned above should
not be considered a complete description of all the activities that could lead
to a categorization as an underwriter.
Broker
dealers who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions),
and thus dealing with shares that are part of an “unsold allotment” within the
meaning of Section 4(a)(3)(C) of the Securities
Act, would be unable to take advantage of the prospectus delivery exemption
provided by Section 4(a)(3) of the Securities Act.
This is because the prospectus delivery exemption in Section 4(a)(3) of the
Securities Act is not available in respect of such transactions
as a result of Section 24(d) of the 1940 Act. As a result, broker dealer firms
should note that dealers who are not underwriters
but are participating in a distribution (as contrasted with ordinary secondary
market transactions) and thus dealing with the
shares that are part of an overallotment within the meaning of Section
4(a)(3)(A) of the Securities Act would be unable to take advantage
of the prospectus delivery exemption provided by Section 4(a)(3) of the
Securities Act. Firms that incur a prospectus delivery
obligation with respect to shares are reminded that, under Rule 153 of the
Securities Act, a prospectus delivery obligation under
Section 5(b)(2) of the Securities Act owed to an exchange member in connection
with a sale on the Exchange is satisfied by the fact
that the prospectus is available at the Exchange upon request. The prospectus
delivery mechanism provided in Rule 153 is only available
with respect to transactions on an exchange.
In
addition, certain affiliates of the Fund and the Adviser may purchase and resell
Fund shares pursuant to this Prospectus.
The
Calvert Principles for Responsible Investment
We
believe that most corporations deliver benefits to society, through their
products and services, creation of jobs, payment of taxes and
the sum of their behaviors. As a responsible investor, Calvert Research and
Management seeks to invest in companies and other issuers
that provide positive leadership in the areas of their operations and overall
activities that are material to improving long-term shareholder
value and societal outcomes.
Calvert
seeks to invest in issuers that balance the needs of financial and nonfinancial
stakeholders and demonstrate a commitment to the
global commons, as well as to the rights of individuals and
communities.
The
Calvert Principles for Responsible Investment (Calvert Principles) provide a
framework for Calvert’s evaluation of investments and
guide Calvert’s stewardship on behalf of clients through active engagement with
issuers. The Calvert Principles seek to identify companies
and other issuers that operate in a manner that is consistent with or
promote:
Environmental
Sustainability and Resource Efficiency
• |
Reduce
the negative impact of operations and practices on the
environment |
• |
Manage
water scarcity and ensure efficient and equitable access to clean
sources |
• |
Mitigate
impact on all types of natural capital |
• |
Diminish
climate-related risks and reduce carbon
emissions |
• |
Drive
sustainability innovation and resource efficiency through business
operations or other activities, products and
services |
Equitable
Societies and Respect for Human Rights
• |
Respect
consumers by marketing products and services in a fair and ethical manner,
maintaining integrity in customer relations and
ensuring the security of sensitive consumer
data |
• |
Respect
human rights, respect culture and tradition in local communities and
economies, and respect Indigenous Peoples’
Rights |
• |
Promote
diversity and gender equity across workplaces, marketplaces and
communities |
• |
Demonstrate
a commitment to employees by promoting development, communication,
appropriate economic opportunity and decent
workplace standards |
• |
Respect
the health and well-being of consumers and other users of products and
services by promoting product safety |
Accountable
Governance and Transparency
• |
Provide
responsible stewardship of capital in the best interests of shareholders
and debtholders |
• |
Exhibit
accountable governance and develop effective boards or other governing
bodies that reflect expertise and diversity of perspective
and provide oversight of sustainability risk and
opportunity |
• |
Include
environmental and social risks, impacts and performance in material
financial disclosures to inform shareholders and debtholders,
benefit stakeholders and contribute to
strategy |
• |
Lift
ethical standards in all operations, including in dealings with customers,
regulators and business partners |
• |
Demonstrate
transparency and accountability in addressing adverse events and
controversies while minimizing risks and building trust |
Through
the application of the Calvert Principles, Calvert could have no or limited
exposure to issuers that:
• |
Demonstrate
poor management of environmental risks or contribute significantly to
local or global environmental problems. |
• |
Demonstrate
a pattern of employing forced, compulsory or child
labor. |
• |
Exhibit
a pattern and practice directly or through the company’s supply chain of
human rights violations or are complicit in human
rights violations committed by governments or security forces, including
those that are under U.S. or international sanction
for human rights abuses. |
• |
Exhibit
a pattern and practice of violating the rights and protections of
Indigenous Peoples. |
• |
Demonstrate
poor governance or engage in harmful or unethical
practices. |
• |
Manufacture
tobacco products. |
• |
Have
significant and direct involvement in the manufacture of alcoholic
beverages without taking significant steps to reduce the harmful
impact of these products. |
• |
Have
significant and direct involvement in gambling or gaming operations
without taking significant steps to reduce the harmful impact
of these businesses. |
• |
Have
significant and direct involvement in the manufacture of civilian handguns
and/or automatic weapons marketed to
civilians. |
• |
Have
significant and direct involvement in the manufacture of military weapons
that violate international humanitarian law, including
cluster bombs, landmines, biochemical weapons, nuclear weapons, blinding
laser weapons, or incendiary weapons. |
• |
Use
animals in product testing without countervailing social benefits such as
the development of medical treatments to ease human
suffering and disease |
(This
page intentionally left blank)
Where
to Find Additional Information
In
addition to this Prospectus, the Fund has an SAI, dated January
28, 2024 (as may be supplemented from time to time), which contains
additional, more detailed information about the Trust and the Fund. The SAI is
incorporated by reference into this Prospectus
and, therefore, legally forms a part of this Prospectus. Certain affiliates of
the Fund and the Adviser may purchase and resell
Fund shares pursuant to this Prospectus.
The
Trust publishes Annual and Semi-Annual Reports (“Shareholder Reports”) that
contain additional information about the Fund’s investments.
In the Fund’s Annual Report to Shareholders, you will find a discussion of the
market conditions and the investment strategies
that significantly affected such Fund’s performance during the last fiscal year.
For additional Trust information, including information
regarding the investments comprising the Fund, please call the toll-free number
below.
You
may obtain the SAI and Shareholder Reports without charge by contacting the
Trust at the toll-free number below or on its website
at: www.calvert.com. If you purchased shares through a Financial Intermediary,
you may also obtain these documents, without
charge, by contacting your Financial Intermediary.
Shareholder
Reports and other information about the Fund are available on the EDGAR Database
on the SEC’s website at http://www.sec.gov,
and copies of this information may be obtained, after paying a duplicating fee,
by electronic request at the following e-mail
address: [email protected].
Morgan
Stanley ETF Trust
c/o
Morgan Stanley Investment Management Inc.
1585
Broadway
New
York, New York 10036
For
Shareholder Inquiries,
call
toll-free 800-836-2414.
Prices
and Investment Results are available at www.calvert.com.
The
Trust’s 1940 Act registration number is 811-23820.
©
2024 Calvert Research and Management